Mortgage Insurance Requirements Are Solely for the Benefit of the Lender
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Posted on March 9, 2022 by Barry Zalma
The district court awarded Christopher Bookter damages in a civil action against Jeromy Brooks, the owner of Chicks Pool Hall (Chicks), and a bartender, Wyatt A. Knisley after being injured in a fight at the Pool Hall. To satisfy the judgment, the district court ordered the pool hall seized and sold. Community State Bank (CSB) held a first mortgage on the pool hall and intervened as priority lienholder.
Bookter filed a cross-claim against CSB alleging negligence because it did not enforce the insurance provision in the mortgage contract. The district court granted summary judgment to CSB on the cross-claim, finding that Bookter was not an intended third-party beneficiary of the mortgage contract between CSB and Brooks. In Christopher Bookter v. Wyatt A. Knisley, et al., and Community State Bank, No. 123, 972, Court of Appeals of Kansas (March 4, 2022) the Court of Appeals resolved the issue of standing.
FACTS
Brooks owned and operated Chicks in Coffeyville, Kansas. CSB loaned Brooks $45,000 which he secured with a mortgage on Chicks filed on August 29, 2017. On January 16, 2019, Bookter patronized Chicks and got into a fight with Knisley, the bartender. Bookter suffered a concussion, multiple contusions and lacerations, a closed fracture of the maxillary sinus, and a fractured orbital floor of the left eye. Bookter’s injuries required hospitalization and reconstructive surgery.
Bookter sued Knisley for assault and battery and the bar owner, Brooks, under the theory of respondeat superior. Bookter filed a motion for summary judgment and the district court granted summary judgment to Bookter and awarded him more than $380,000 in economic and noneconomic damages.
After the judgment the district court ordered the Sheriff to seize and sell the pool hall to satisfy the judgment. CSB, as priority lienholder, moved to intervene. Bookter filed a cross-claim against CSB alleging negligence for not mandating that Brooks renew or secure liability insurance as required by the mortgage. Bookter asserted that he was entitled to recovery as a “third party creditor beneficiary” of the mortgage contract.
The district court granted CSB’s motion for summary judgment.
THE MORTGAGE
The mortgage contains the following language: ‘PROPERTY DAMAGE INSURANCE. … [Brooks] shall also procure and maintain comprehensive general liability insurance in such coverage amounts as [CSB] may request with [CSB] being named as additional insureds in such liability insurance policies…. Each insurance policy also shall include an endorsement providing that coverage in favor of [CSB] will not be impaired in any way by any act, omission or default of [Brooks] or any other person. . . .
In granting summary judgment for CSB, the district court found that Bookter was not an expressly intended third-party beneficiary to the mortgage agreement. The district court found that Bookter may have been an incidental beneficiary of any agreement to maintain insurance, but as an incidental beneficiary Bookter had no right to recovery under Kansas law.
The mortgage required the borrower to procure and maintain comprehensive general liability insurance in such coverage amounts as the lender “may request.” In another agreement signed by Brooks, the “Agreement to Provide Insurance,” it stated that Brooks would acquire minimum insurance coverage for the loan collateral including all inventory, equipment, and fixtures. The agreement provided that if Brooks failed to maintain adequate insurance coverage, then CSB could purchase coverage up to the balance of the loan.
Brooks, complying with the contracts, secured insurance coverage with United Specialty Insurance Company and provided CSB with a copy of the policy. The policy contained an exclusion for assault and battery and lapsed after a year.
While it is standard practice for lenders to require borrowers to maintain insurance, there is no law requiring it. The requirement is solely contractual and up to CSB to enforce.
CSB did not exercise its right under the agreement to purchase insurance on Brooks’ behalf when the policy lapsed. As a result, there was no liability policy in effect when Bookter sustained his injuries at Chicks. Even if a policy had been in effect, the coverage limit would have been $45,000, and it is questionable whether the policy would have provided coverage for the assault and battery Bookter alleged Knisley committed.
ANALYSIS
The district court granted summary judgment to CSB, finding Bookter was not a third-party beneficiary to the contract and thus lacked standing. Standing is a jurisdictional question which determines whether a litigant has a right to have a court determine the merits of the issues presented.
A party not privy to a contract has standing to sue as a third-party beneficiary if he or she establishes that the contract was made for his or her benefit, though not necessarily exclusively, and the parties intended that he or she benefit as a third-party beneficiary. Only an intended beneficiary has standing to sue for damages resulting from a breach of the contract. An intended beneficiary is one that the contracting parties intended the contract to benefit.
Mere knowledge by the contracting parties that a third party could benefit from the contract does not imply the contracting parties’ intent to benefit the third party.
Bookter tries to argue that the general liability insurance was meant to cover assault and battery, which he claims is the “primary liability risk associated with the business activity of the pool hall.” Bookter says that the risk of personal injury by assault and battery was known or should have been known by the loan officers and that is why the bank required the liability coverage. Although the pool hall had a CGL policy, that expired before the incident, it excluded assault and battery.
Standing
To have standing as a third-party beneficiary, Bookter must show that the mortgage contract was expressly intended to benefit him, or others in the same class as him.
The undisputed evidence before the district court showed that the intent of the insurance provision in the mortgage contract was solely for the benefit of CSB. Thus, the district court did not err in granting summary judgment to CSB.
ZALMA OPINION
Bookter, injured and with a $380,000 judgment that he could not collect – even if the property of the pool hall was sold – without first paying the judgment tried to create a right against the bank that held the mortgage on the property of the pool hall did not compel the pool hall to buy CGL insurance that covered assault and battery. Unfortunately for Bookter he had no standing and his creative efforts to find a way to collect his judgment failed.
© 2022 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.
He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.
Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.
You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, [email protected] and [email protected] . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma; you can follow Mr. Zalma on Twitter at; you should see Barry Zalma’s videos on https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg/featured; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims–library/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/
Notice of Claim Later than 60 Days After Expiration is Too Late
Post 5089
Injury at Massage Causes Suit Against Therapist
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Hiscox Insurance Company (“Hiscox”) moved the USDC to Dismiss a suit for failure to state a claim because the insured reported its claim more than 60 days after expiration of the policy.
In Mluxe Williamsburg, LLC v. Hiscox Insurance Company, Inc., et al., No. 4:25-cv-00002, United States District Court, E.D. Missouri, Eastern Division (May 22, 2025) the trial court’s judgment was affirmed.
FACTUAL BACKGROUND
Plaintiff, the operator of a massage spa franchise, entered into a commercial insurance agreement with Hiscox that provided liability insurance coverage from July 25, 2019, to July 25, 2020. On or about June 03, 2019, a customer alleged that one of Plaintiff’s employees engaged in tortious ...
ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Posted on June 2, 2025 by Barry Zalma
Post 5087
See the full video at and at
Read the full article and the full issue of ZIFL June 1, 2025 at https://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-06-01-2025.pdf
Zalma’s Insurance Fraud Letter – June 1, 2025
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ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Read the full article and the full issue of ZIFL June 1, 2025 at https://lnkd.in/gTWZUnnF
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at ...
No Coverage if Home Vacant for More Than 60 Days
Failure to Respond To Counterclaim is an Admission of All Allegations
Post 5085
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In Nationwide Mutual Insurance Company v. Rebecca Massey, Civil Action No. 2:25-cv-00124, United States District Court, S.D. West Virginia, Charleston Division (May 22, 2025) Defendant Nationwide Mutual Insurance Company's (“Nationwide”) motion for Default Judgment against Plaintiff Rebecca Massey (“Plaintiff”) for failure to respond to a counterclaim and because the claim was excluded by the policy.
BACKGROUND
On February 26, 2022, Plaintiff's home was destroyed by a fire. At the time of this accident, Plaintiff had a home insurance policy with Nationwide. Plaintiff reported the fire loss to Nationwide, which refused to pay for the damages under the policy because the home had been vacant for more than 60 days.
Plaintiff filed suit ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
Post 5062
Posted on April 30, 2025 by Barry Zalma
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...