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Homeowner Is Found to be a Beneficiary of Forced Placed Insurance
Post 4782
Keith Rath was unhappy with Arch Insurance Company over coverage for damage from the Derecho (windstorm) that hit Cedar Rapids in 2020. Rath’s bank holding a security interest in his home contracted with Arch to obtain a force-placed policy after Rath’s homeowners insurance lapsed. When Rath sued Arch for breach of contract and related claims, Arch argued that he had no right to sue because Rath was not an intended third-party beneficiary of the contract between Arch and the bank.
Keith Rath and Dennis Faltis v. Arch Insurance Company, No. 23-0157, Court of Appeals of Iowa (April 10, 2024) read the full policy and found the language of the policy gave Rath an interest in the proceeds of the insurance policy.
FACTS
The bank is Rath’s lender for a loan secured by his home. At some point, Rath let his homeowners insurance lapse in violation of the terms of the loan agreement.
When the bank learned of the lapse, it notified Rath that the insurance it bought might be “significantly more expensive than the insurance” he could obtain himself and might provide less coverage than such a personal policy. Rath then began paying monthly premiums for this insurance to the bank.
THE INSURANCE CONTRACT
The policy stated that Rath, as the “Borrower,” “has no interest in this policy” yet included an endorsement expressly giving Rath a benefit. That endorsement provides that while Rath “is neither a Named Insured nor an additional named insured under the policy,” he “shall be considered an additional loss payee only as respects amounts of insurance over and above the interests of” the bank in his home. The Court of Appeals concluded that there was no possible purpose for this endorsement besides providing a benefit to Rath.
The policy warns in a general statement on its cover pages that it does not “provide coverage for the Interest or equity of the Borrower.” It later defines the “Named Insured” as “the creditor, lending institution, company, or person holding and/or servicing the Mortgagee Interest on the Described Location.” And it expressly confirms that “[t]he Borrower is not a Named Insured under this policy and no coverage is provided, either directly or indirectly, to the Borrower.” The policy’s default text also defines the Borrower and then makes abundantly clear: “The Borrower has no interest in this policy.”
But that last line was stricken and replaced with text from an Amount-of-Insurance endorsement that the parties added to the policy. So rather than having “no interest in this policy,” under the endorsement: “The Borrower is neither a Named Insured nor an additional named insured under this policy; however, the Borrower shall be considered an additional loss payee only as respects amounts of insurance over and above the interests of the Named Insured in the Described Location.”
THE STORM
In August 2020, a Derecho [A widespread, long-lived wind storm that is associated with a band of rapidly moving showers or thunderstorms. Although a derecho can produce destruction similar to the strength of tornadoes, the damage typically is directed in one direction along a relatively straight swath.] swept across Iowa, hitting Cedar Rapids especially hard. A tree fell on the house and it sustained wind damage. Among other damage, Rath believes most of the roof was damaged, along with siding, windows, and electrical systems. And so, Rath reported the damage to the bank, which made a claim to Arch under the policy. After Arch’s adjuster agreed that “the dwelling sustained damage due to wind and tree impact,” Arch decided that there was a covered loss of $1,222.37 and mailed a check for that amount directly to Rath.
THIS PROCEEDING
About a year after the storm, Rath sued Arch over this dispute. Rath claimed that Arch breached the insurance contract by denying proper payment for his losses and refusing to engage in the appraisal process under the policy. He also brought claims of bad faith and unjust enrichment and sought declaratory and injunctive relief related to his rights under the policy and the appraisal process.
Rath appealed the district court’s grant of summary judgment and dismissal of all his claims.
Interpreting an insurance policy is a legal question. Rath’s main argument that he is an intended third-party beneficiary of the insurance policy relies on the Amount-of-Insurance endorsement. The court of appeals agreed with Rath that the endorsement manifests an unambiguous intent to benefit him. Indeed, the Court of Appeals concluded that there is no other possible intent for contract provisions increasing the coverage above the bank’s interest and giving Rath a right to payment.
Saying that Rath is not a “Named Insured nor an additional named insured” is not the same as saying he is not a third-party beneficiary. By deleting that text-while also increasing the coverage above the bank’s interest and giving Rath a right to payment-the endorsement leaves little doubt that indeed Rath does now have an interest in the policy. He is an intended third-party beneficiary.
The parties fought a preliminary legal skirmish on the limited ground chosen by Arch-whether Rath is a third-party beneficiary under the contract. And because Arch lost that battle, the fight must now go on.
ZALMA OPINION
Poor wording in an insurance policy will often result in strange and confusing court decisions. The court found, because a clause allowed Rath to recover for losses over the interest of the bank made him a third party beneficiary. What the Court of Appeal ignored was that his interest was only available after the full interest of the bank were paid. The loss was only $1,222.37, much less than a mortgage loan. Since the loss was less than the amount of the banks interest, Rath had no right to that money as a third party beneficiary since the loss was less than the interest of the bank.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Notice of Claim Later than 60 Days After Expiration is Too Late
Post 5089
Injury at Massage Causes Suit Against Therapist
Read the full article at https://lnkd.in/gziRzFV8, see the full video at https://lnkd.in/gF4aYrQ2 and at https://lnkd.in/gqShuGs9, and at https://zalma.com/blog plus more than 5050 posts.
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
See the full video at https://lnkd.in/gw-Hgww9 and at https://lnkd.in/gF8QAq4d, and at https://zalma.com/blog plus more than 5050 posts.
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...