The homeowner's complaint was improperly dismissed without leave to amend to demonstrate she was a third-party beneficiary of a lender-placed policy on her home. Williams v. Integon Nat'l Ins. Co., 2025 U.S. App LEXIS 6919 (5th Cir. March 25, 2025).
Ellen Williams purchased a home which was mortgaged by Flagstar Bank. Because she did not insure the home, Flagstaff obtained a "lender-placed hazard insurance policy from Integon at Williams' expense. The policy named Flagstaar as the "insured" and Williams as the "Borrower." Williams paid all premiums and complied with all requirements in the policy. Flagstar negotiated for a policy limit of $77,934, rather than opting to use its own insurable interest in the property to cap the liability risk. The policy provided as follows:
13. Loss Payment. WE will adjust each LOSS with [Flagstar] and will pay [Flagstar]. If the amount of Loss exceeds [Flagstar's] insurable interest, WE will pay BORROWER any residual amount due for the LOSS, not exceeding the Limit of Liability indicated on the NOTICE OF INSURANCE.
In August 2021, Williams' home was damaged by Hurricane Ida. Integon inspected the property, but refused to pay for property repairs in full. Williams sued Integon asserting breach-of-contract and bad-faith claims. Integon filed a Rule 12 (b) (6) motion to dismiss.
Integon asserted that Williams lacked standing to sue under the policy because she was not a named insured, an additional insured, or a third-party beneficiary. Williams contended that she was a third-party beneficiary. The district court disagreed and granted Integon's motion to dismiss. The court reasoned that any benefit that flowed to a borrower-mortgagor in a forced-placed lender policy context was "merely incidental" to the policy and could not confirm third-party beneficiary status on the borrower. The district court denied an opportunity to amend the complaint, reasoning that an amendment would be futile because Williams could not plead any set of facts that would show such benefits were more than incidental. Williams appealed.
Williams argued that the loss payment provision entitling her to excess payments above Flagstar's insurable interest made clear that the policy stipulated a benefit to her. The Fifth Circuit agreed.
Since Williams asserted in her response to the motion to dismiss that her damages exceeded Flagstar's insurable interest, she could plead facts showing the benefit owed to her was certain. The policy's loss payment provision represented a clear intent to provide Williams with a certain benefit when the loss amount exceeded Flagstar's insurable interest in the property. That benefit was not merely incidental to the contract, but was expressly provided for. If Williams could show certainty as to the benefit owed to her under the policy – i.e., if Williams could allege that the amount of loss exceeded Flagstar's insurable interest – then she had standing to pursue her claims as a third-party beneficiary.
