What is an insurance agent to do when the clients are deadbeat property owners and mortgage holders located hundreds of miles away?
A corporation owned a house in the French Quarter of New Orleans with an outstanding mortgage loan held by a California trust. In 2017, the owners obtained property insurance from two independent insurance brokerages. In 2018, the mortgage holders apparently found it necessary to force place coverage on the house. They contacted the insured’s brokerages and requested insurance to cover their interest in the property, “particularly for any acts committed by (the owners), including vandalism, theft, and destruction of property.”
In April 2018, one of the insurance producers emailed the mortgagees a proposal for a policy that would cover the owners as named insureds and the mortgagees as additional insureds. The mortgagees argued that they should be the named insureds. The producer replied that the owners had to be the named insureds because they held title to the property. She added that the mortgage holders would be listed as additional insureds and loss payees.
The mortgagees asked her to bind coverage, and on April 6 an insurer issued the policy in the name of the owners with the mortgage holders named as mortgagees and additional insureds. A few days later, the mortgagees sued to foreclose on and seize the property.
Months later, the mortgagees were alerted that people were removing items from the house. They contacted the New Orleans police to report a theft. A police officer found a man and woman removing cabinets and claiming they were removing property with the previous owner’s permission. The officer relayed this information to the mortgagees, who denied the story and demanded that the items be returned. Under the officer’s orders, the couple returned the items.
After inspecting the property, a representative of the mortgagees submitted an insurance claim for theft of several structural components. A claim adjuster visited, found a building permit and stop work order posted, and concluded that the place was under construction. The lines to HVAC units and equipment had been cut, but there were otherwise no signs of vandalism or theft. The insurer paid more than $23,000 for the HVAC units and equipment, but refused to pay for the other items the mortgagees claimed were stolen.
The record does not state the dollar amount of the allegedly stolen items, but the list includes virtually everything that gets installed in a renovated building, including doors, walls, ceilings, fixtures, flooring, and more. The loss was likely in six figures.
The mortgagees sued the brokerages for negligently selling a policy that did not fully cover the loss and that required the former owners to be named insureds. The brokerages asked the court to rule in their favor based on the law.
The judge noted that, under Louisiana law, an insured is obligated to read and review an insurance policy to ensure its needs are met, and the insured is deemed to know the policy’s contents and exclusions.. He found no evidence that the producer misled the mortgagees about the policy’s coverage, and ruled in favor of the brokerages.
There’s not much an insurance agent can do for an absentee owner who is unaware of what is happening to his property. His own building was being renovated and he did not know it. The insurance producer did her job – she obtained the requested coverage and explained why it had to be structured that way. Further, she had documents backing up her side of the story. This is a good example of how insurance agencies should document interactions with clients.