On May 19, 2015, lightning hit the Browns' home and caused damage. Robin Guthrie Brown notified Ocwen and American Security and made an insurance claim. American Security inspected the damages and paid $31,615.55, listing Ocwen and the Browns as payees on the check.

On July 29, 2015, lightning struck the home again, causing more damage. Robin Guthrie Brown notified Ocwen and American Security. American Security found that there was no additional damage.

On March 7, 2016, the Browns' home experienced a power surge that caused damage to various electrical systems and appliances. Robin Guthrie Brown notified Ocwen and American Modern. American Modern found that there was no coverage for the claimed damage and that there was no additional damage other than that caused by the previous lightning strikes.

The Browns sued American Security and American Modern, alleging that they were beneficiaries of the insurance policies because they were listed as “borrowers” in the policies and paid the insurance premiums through Ocwen. The Browns claimed that they must be beneficiaries of the American Security insurance policy because they were listed as payees on the $31,615.55 insurance proceeds check. They also cited provisions of the American Modern policy that imposed duties and obligations on them as evidence that they were beneficiaries of that insurance policy.

They alleged that American Security and American Modern had breached the insurance contracts by failing to properly pay claims and were liable for penalties and attorneys' fees under Louisiana Revised Statutes §§ 22:1892 and 22:1973.

American Security and American Modern moved to dismiss, arguing that the Browns did not have standing because they were not the named insured, additional insured, or third-party beneficiaries under the insurance policies.

The American Modern Policy

The American Modern policy stated that Ocwen was the named insured and defined

you 

and

your 

as referring to Ocwen.

The American Modern policy's

Loss Payable

clause stated:

We will adjust any loss with you and the mortgagor. We will pay you to the extent of your interest in the property. You hereby direct that any benefits due which are in excess of your interest in the property be paid to the mortgagor…. 

The American Security policy's

Loss Payment

clause provided:

a. [American Security] will initiate loss adjustment of a claim with [Ocwen]

***

b. [American Security] will make written offer to [Ocwen] to settle a claim within 30 days after receipt of satisfactory proof of loss of that claim.

c. Loss will be made payable to [Ocwen]. No coverage will be available to any mortgagee other than that shown as the names insured on the Declarations. The undisputed portion of the loss will be payable with 30 days after [American Security] receive[s] [Ocwen's] proof of loss. 

The district court reached a somewhat different result on the American Modern and American Security motions.

In its decision, the district court first found that regardless of whether the Browns were additional or named insureds or third-party beneficiaries under the American Security or American Modern insurance policies, they had Article III standing to state claims against the insurers because they allegedly had been harmed by underpayment of insurance proceeds and they would indirectly benefit from judgment against the insurers.

Then, the district court explained that, to state a claim under an insurance policy, a plaintiff must be a named insured, an additional named insured, or an intended third-party beneficiary of the policy. Because the Browns were neither the named insured nor an additional insured under the policies, the district court examined whether they were third-party beneficiaries. In Louisiana, a contract for the benefit of a third party is referred to as a “stipulation pour autrui.”

The district court ruled that the Browns' payment of the insurance premiums through Ocwen and the policies' placing duties on the Browns did not create a stipulation pour autrui.

The district court then examined the loss payment terms of the insurance policies to determine whether the policies manifested a “clear intent” to provide a certain benefit to the Browns that was not merely incidental to the contract between Ocwen and the insurers.

The district court noted that the Browns' original mortgage amount was $680,000 and that the American Modern policy limit of liability for the dwelling was $1,021,715. It explained that the benefit to the Browns was triggered when the loss payment exceeded Ocwen's interest in the property. The district court then ruled that the Browns' complaint had not alleged facts sufficient to establish that that there was a stipulation pour autrui because there was no information regarding the amount of the insurance claim against American Modern or the Browns' mortgage balance. Without allegations demonstrating that the condition requiring American Modern to pay the Browns had been triggered – that is, that the amount of the loss exceeded the mortgage balance – the Browns' complaint did not sufficiently allege that there was a stipulation pour autrui, and the Browns had not stated a claim against American Modern for breaching the insurance contract.

Accordingly, the district court granted American Modern's motion to dismiss, albeit without prejudice to the Browns' filing an amended complaint within 15 days alleging specific facts demonstrating that the amount of the insurance claim against American Modern exceeded their mortgage balance.

The district court reached a somewhat different conclusion with respect to American Security. It explained that the American Security policy contained no mention of the Browns' insurable interest or any provision for payment to the Browns. Thus, it found, there was no manifestly clear intention for the American Security policy to provide a benefit to the Browns that would be sufficient to create a stipulation pour autrui, and the Browns could not sue American Security for breaching the insurance contract. The district court, therefore, granted American Security's motion to dismiss with prejudice.

The case is Brown v. American Modern Home Ins. Co., No. 16-16289 (E.D. La. May 24, 2017).