Texas Homeowner’s Insurance Policy Litigation

Trevino v. Evanston Ins. Co. (2011)

United States District Court,
S.D. Texas,
McAllen Division.
Antonio TREVINO, Plaintiff,
COMPANY, et al, Defendants.
Civil Action No. M–11–18. July 12, 2011.

RANDY CRANE, District Judge.
I. Introduction
*1 Now before the Court are the Motions to Dismiss filed
by Defendants Evanston Insurance Company and Carrington
Mortgage Services, LLC d/b/a CMS Mortgage Services,
LLC, respectively, for lack of subject matter jurisdiction
pursuant to Federal Rule of Civil Procedure 12(b)(1).
(Docs.13, 17). Plaintiff Antonio Trevino originally filed suit
in the 389th Judicial District Court, Hidalgo County, Texas,
on September 21, 2010, and Defendants removed the action to
federal court on January 21, 2011 on the uncontested grounds
that the requisites of federal diversity jurisdiction are present.
(Doc. 1; Doc. 1, Ex. E); see 28 U.S.C. §§ 1332(a), 1441(a),
1446. Plaintiff’s Original Petition, the live pleading in the
action, alleges that “Defendants” issued a policy insuring
property owned by Plaintiff in Edinburg, Texas and that
Plaintiff made a claim under the policy seeking coverage
for roof and water damage sustained by the property as a
result of Hurricane Dolly on July 23, 2008. (Doc. 1, Ex. E).
Plaintiff brings causes of action against both Evanston and
Carrington for breach of the insurance policy, violations of
sections 541 and 542 of the Texas Insurance Code and of the
Texas Deceptive Trade Practices Act (“DTPA”), and breach
of the duty of good faith and fair dealing, all arising out
of Defendants’ alleged mishandling of the insurance claim
and unfair settlement practices. Id. Defendants now move to
dismiss for lack of subject matter jurisdiction on the grounds
that Plaintiff has no standing to sue under the policy, which is
a force-placed (also known as lender-placed) policy issued by
insurer Evanston to mortgage servicing company Carrington
as the only named insured. (Docs.13, 17). Plaintiff counters
that he has standing to sue as a third-party beneficiary of the
policy. (Docs.18, 19). Upon review of Plaintiff’s pleading,
Defendants’ motions, and the record, in light of relevant case
law, the Court finds that the motions must be granted for the
following reasons.
II. Standard of Review
Rule 12(b)(1) authorizes the dismissal of a case for lack
of subject matter jurisdiction when the district court lacks
the statutory or constitutional power to adjudicate the case.
Home Builders Ass’n of Miss., Inc. v. City of Madison,
143 F.3d 1006, 1010 (5th Cir.1998) (quoting Nowak v.
Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1187
(2d Cir.1996)). “[T]he issue of standing is one of subject
matter jurisdiction,” Cobb v. Cent. States, 461 F.3d 632, 635
(5th Cir.2006), and in this diversity case the substantive law
of Texas governing Plaintiff’s causes of action determines
whether he has standing to sue as a third-party beneficiary.
See Kona Tech. Corp. v. S. Pac. Transp. Co., 225 F.3d
595, 602–03 (5th Cir.2000) (addressing standing inquiry in
diversity case pursuant to Texas law governing third-party
beneficiary status); Palma v. Verex Assurance, Inc., 79 F.3d
1453, 1456 (5th Cir.1996) (district court in diversity case
correctly held that it was bound to apply substantive law
of Texas in determining whether plaintiff had third-party
beneficiary status to sue under policy for Texas Insurance
Code violations). A court may base its disposition of a motion
to dismiss for lack of subject matter jurisdiction on any one
of three bases: (1) the complaint alone; (2) the complaint
supplemented by undisputed facts in the record; or (3) the
complaint supplemented by undisputed facts plus the court’s
resolution of disputed facts. Ramming v. United States, 281
F.3d 158, 161 (5th Cir.2001) (citing Barrera–Montenegro v.
United States, 74 F.3d 657, 659 (5th Cir.1996)). Ultimately,
the court should grant the motion “only if it appears certain
that the plaintiff cannot prove any set of facts in support of his
claim that would entitle [him] to relief.” Ramming, 281 F.3d
at 161 (citing Home Builders Ass’n, 143 F.3d at 1010).
Trevino v. Evanston Ins. Co., Slip Copy (2011)
III. Defendants’ Motions to Dismiss
*2 Plaintiff’s Original Petition erroneously references a
policy that became effective after the date of loss, but
Defendants do not dispute that another Evanston policy
concerning Plaintiff’s property was in place when the loss
occurred. See (Doc. 1, Ex. E; Doc. 13, Ex. B; Doc.
17, Exs. 1–3). Evanston issued that policy, a “Standard
Fire Insurance Policy” with a “Mortgage Guard Policy”
endorsement (collectively, “the Policy”), to Carrington as the
only named insured. (Doc. 13, Ex. B at 0001, 0005, 0010).
The Policy language reflects and Plaintiff does not dispute
that Carrington is the servicer of Plaintiff’s mortgage and
obtained the Policy to protect its interest in the event Plaintiff
failed to maintain windstorm coverage on the mortgaged
property, which in fact occurred. (Doc. 13, Ex. B). 1 The
Policy covers property damage resulting from specific perils,
including windstorm or hail. (Doc. 13, Ex B at 0023–0025,
0080–0081). Under the Policy, “[l]oss shall be adjusted with
and made payable to the Named Insured unless another payee
is specifically named.” (Doc. 13, Ex. B at 0012).
1 The Policy provides automatic coverage to Carrington
when it files a claim showing an absence of coverage
on the property. (Doc. 13, Ex B at 0080–0081).
Plaintiff does not contest that he is neither a named or
additional insured under the Policy. (Docs.18, 19). Therefore,
he recognizes that whether he has standing to bring any
of the asserted causes of action turns on whether he is a
third-party beneficiary of the contract between Evanston and
Carrington. Id. In the context of insurance litigation arising
from Hurricane Katrina, numerous district courts applying
Louisiana law have declined to find that a borrower, or
mortgagor, was a third-party beneficiary under a force-placed
hazard insurance policy issued by the insurer to the lender, or
mortgagee. E.g., Graphia v. Balboa Ins. Co., 517 F.Supp.2d
854, 857–58 (E.D.La.2007); Carrier v. Balboa Ins. Co., 2009
WL 666962, at *2–3 (W.D.La. Mar.10, 2009); Riley v. Sw.
Bus. Corp., 2008 WL 4286631, at *3 (E.D.La.2008). The
district court in Riley explained:
Under Louisiana law, “[t]he most basic requirement of a
stipulation pour autrui [stipulation “for other persons”]
is that the contract manifest a clear intention to benefit
the third party; absent such a clear manifestation, a party
claiming to be a third-party beneficiary cannot meet his
burden of proof.” Joseph v. Hospital Service Dist. No. 2
of Parish of St. Mary, 939 So.2d 1206, 1212 (La.2006). In
this case, the contracts do not “manifest a clear intention
to benefit” Riley. Id. As with all forced placed policies,
Midwest initiated coverage in order to protect its own
security interest in the property, not to provide any sort of
benefit for the mortgagor. Indeed, the very purpose of a
forced placed policy is to cover the uninsured portion of
the mortgagee’s interest. Though Riley may incidentally
benefit from the stopgap coverage, he was not an intended
beneficiary and is thus not entitled to enforce the contract
in court. See id. (holding that for a third party to be entitled
to enforce a contractual benefit, the benefit must not be “a
mere incident of the contract between the promisor and the
*3 Riley, 2008 WL 4286631 at *3. Recently, the Fifth
Circuit in an unpublished decision also concluded that the
force-placed flood insurance policy at issue did not manifest
a clear intent to benefit the borrowers as is required to
show third-party beneficiary status under Louisiana law.
Williams v. Certain Underwriters at Lloyd’s of London, 2010
WL 4009818, at ––––4–6 (5th Cir. Oct.13, 2010). Plaintiff
attempts to distinguish the district court cases and Williams by
claiming that although the Evanston Policy “is primarily for
the benefit of Carrington,” the Policy “also provides coverage
for personal liability, medical pay to others, personal property
loss, and loss of use coverage” which could only inure to
the benefit of Plaintiff. (Doc. 19 (citing Doc. 13, Ex. B
at 0049, 0051, 0054, 0056)). Plaintiff points out that the
plaintiffs in Williams attempted to make a similar argument
—that the “temporary housing expense” section of the policy
conferred third-party beneficiary status on them—and that
the Fifth Circuit did not reach the merits of that argument
because the plaintiffs had waived it by first raising it on
appeal. (Docs.18, 19); see Williams, 2010 WL 4009818,
at ––––3–4. Therefore, Plaintiff directs the Court instead
to the Fifth Circuit’s decision in Palma, supra, in which
the court determined that the borrower was a third-party
beneficiary under a “mortgage guarantee insurance policy”
purchased by the mortgagee to protect it from a loss in the
event the borrower defaulted on the loan. Palma, 79 F.3d
at 1457–58. The policy provided that “[t]he Borrower shall
not be liable to the Company [insurer] for any loss paid
to the Insured [mortgagee] pursuant to this policy.” Id. at
1457. The court determined that this language benefitted the
borrower only and gave her third-party beneficiary standing
to sue the insurer when, after receiving an assignment of
the deficiency due on the note, the insurer attempted to
collect the deficiency from the borrower without crediting to
her those proceeds already paid to the mortgagee under the
policy. Id. at 1457–58. Plaintiff characterizes the “personal
liability,” “medical pay to others,” “personal property,” and
Trevino v. Evanston Ins. Co., Slip Copy (2011)
“loss of use” coverages provided by the “Special Broad Form
Homeowners Coverage” endorsement to the Evanston Policy
as clearly benefitting only Plaintiff and therefore akin to
the provision in Palma. (Docs.18, 19). However, Evanston
counters that these coverages only become available when
a mortgagee complies with the reporting provisions of the
Mortgage Guard Policy, which require the mortgagee to
notify Evanston of “any change of ownership or occupancy
or increase of hazard,” i.e., foreclosure, and to pay additional
risk premiums. (Doc. 13, Ex. B at 0016; see also Doc. 13,
Ex. B at 0048–0072; Docs. 18, 19, 22). In Texas, much like
in Louisiana, “a presumption exists that parties contracted for
themselves unless it ‘clearly appears’ that they intended a third
party to benefit from the contract.” MCI Telecomms. Corp.
v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 651 (Tex.1999).
“Incidental benefits that may flow from a contract to a third
party do not confer the right to enforce the contract.” S.
Tex. Water Auth. v. Lomas, 223 S.W.3d 304, 306 (Tex.2007)
(citing MCI Telecomms. Corp., 995 S.W.2d at 652). Here,
the Policy language unambiguously manifests the intent to
provide hazard coverage to Carrington to the extent of its
interest in the property, and any benefit conferred to Plaintiff
as a result is incidental. See Gilbreath v. White, 903 S.W.2d
851, 854 (Tex.App.-Texarkana 1995, no writ) (mortgagee
has insurable interest in mortgaged property that is “entirely
separate and distinct” from that of mortgagor to the extent
of the debts secured). Plaintiff has pointed to no provision
that makes clearly apparent the contracting parties’ intent to
confer a direct benefit on Plaintiff. Therefore, Plaintiff is not
a third-party beneficiary under the Policy and has no standing
to pursue his claims.
IV. Conclusion
*4 For the foregoing reasons, the Court finds that Plaintiff
lacks standing to assert all of the causes of action in this suit.
Accordingly, the Court hereby ORDERS that Defendants
Evanston’s and Carrington’s respective Motions to Dismiss
for lack of subject matter jurisdiction are hereby GRANTED
and all claims against Defendants are hereby DISMISSED.

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

Martindale AVtexas[2]