United States District Court, E.D. Louisiana
ORDER AND REASONS
NANNETTE JOLIVETTE BROWN, District Judge.
This litigation arises because Plaintiff First Bank and Trust disputes the propriety of Defendant Scottsdale Insurance Company's attempted payment of insurance proceeds jointly to Plaintiff First Bank and Trust and its alleged debtor Edward Neely, a non-party. Plaintiff asserts that it is entitled to a judgment for the full amount of the sums Defendant attempted to pay. Defendant maintains that it has fully discharged its obligation. Presently pending before the Court is a "Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(6)" filed by Defendant. Having considered the motion, the memoranda in support, the memorandum in opposition, and the applicable law, the Court will deny the pending motion.
A. Factual Background
In its complaint, Plaintiff alleges that Defendant issued a policy of insurance to Edward Neely covering seven properties in New Orleans ("Insured Properties."). Plaintiff contends that Defendant's insurance policies designate it as the loss payee/mortgagee. Plaintiff maintains that Neely is obligated to it, and granted it a multiple indebtedness mortgage on the insured properties to secure his obligation. According to Plaintiff, Edward Neely and Sheryl Neely, neither of whom are parties to this suit, executed two promissory notes to it on January 29, 2008: a note for $977, 600 and a note for $465, 000. Both notes, Plaintiff asserts, are secured by the mortgage upon the insured properties; principal amounts of $990, 000 and $250, 000, plus additional amounts, remain due on the notes.
Plaintiff alleges that Defendant tendered two checks to Neely in connection with damage to the insured properties, including a check in the amount of $89, 750, dated June 30, 2014 ("Check 1") and a check in the amount of $16, 978.70, dated August 18, 2014 ("Check 2"), both of which Plaintiff possessed at the time it filed its complaint. Plaintiff asserts that the terms of Defendant's insurance policy with Neely entitle Plaintiff to the amounts due under the policy, since its interest in the mortgage is superior to Neely's. Plaintiff contends that, as the loss payee/mortgagee, it has "a direct cause of action" against Defendant for the amounts due under the policy, for the full amounts of both checks. Plaintiff seeks these amounts, plus costs and legal interest.
B. Procedural Background
Plaintiff filed a complaint with this Court on September 4, 2014. The matter was initially assigned to Section "J" of this Court, but Section "J" entered an "Order of Recusal" on September 8, 2014, causing the matter to be reassigned to this Section, Section "G." On September 9, 2014, Plaintiff filed an ex parte "Motion to Deposit Original Checks for Safekeeping." The Court granted Plaintiff's ex parte motion on September 10, 2014, causing Checks 1 and 2 to be deposited with the Clerk of Court pending the resolution of this matter. On December 11, 2014, Defendant filed a "Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(6)." On December 23, 2014, Plaintiff filed an opposition to Defendant's motion. On January 2, 2015, with leave of Court, Defendant filed a reply in further support of its motion.
II. Parties' Arguments
A. Defendant's "Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(6)" 
In its motion to dismiss, Defendant contends that it "satisfied all duties it owed under the policy by issuing the check in the names of both [P]laintiff and the named insured, " and that Plaintiff therefore has failed to state a claim upon which relief can be granted. Defendant asserts that the Mortgage Clause in its insurance policy provided that amounts due under the policy would be "paid to the mortgagee and you [Edward Neely], as interests appear." According to Defendant, this Clause is a "simple or open mortgage clause" which, under Louisiana law, does not confer "a separate contractual right of action against the mortgagor's insurer."
Defendant contends that under both simple and "standard" loss payee clauses, the insurer "typically" provides a joint check to the insured and the loss payee. The policy at issue here, Defendant maintains, requires Defendant to include both names on the check, and the policy's use of the phrase "as interests appear" operates to prevent the named insured from taking payment upon the check when the mortgagee has priority of payment. The question of priority, Defendant asserts, "is an issue solely between the named insured and its mortgagee and does not restrict the insurer from including both names on payments made under the policy." Defendant asserts that it complied with its obligations under the clause by paying losses owed under the policy to both Plaintiff and Neely. Defendant further contends that it has done the same thing "on eight prior occasions" while adjusting claims filed on the Insured Properties, with no objection from Plaintiff; this prior history, Defendant contends, "exemplifies the propriety" of its payment process.
Defendant asserts that it cannot be held liable unless "the responsibility of determining the amount due on the mortgage" is placed on it. Defendant maintains that this responsibility should not be placed upon it, because: (1) it is not directly involved in the mortgage; (2) the insurance policy does not expressly impose this duty; and (3) it is illogical to require it to determine what is due under the mortgage and apportion payments accordingly, because it is not privy to the current balance on the mortgage. Therefore, Defendant asserts, the only duty it has is to issue payments in the name of the mortgagee and the named insured. Defendant maintains that it issued payments in this way, consistent with Louisiana law, and therefore is under no obligation to take the "additional steps suggested by [P]laintiff."
B. Plaintiff's Opposition
In opposition to Defendant's motion to dismiss, Plaintiff asserts that because Defendant issued checks that it cannot redeem without the endorsement of Neely, it has received "only two pieces of paper" that are "essentially worthless" in their own right, negating Defendant's assertion that it has satisfied its duties under the policy.
Plaintiff contends that the Mortgage Clause in Defendant's insurance policy required it to make payments according to an allocation of interests in the insured properties. "If payment by joint check could satisfy the insurer's obligation, " Plaintiff contends, "there would be no requirement that the payment be made as interests appear.'" Plaintiff maintains that this phrase permits it to recover the full amount of payment due to it from Scottsdale, including the full insurance payment where, as here, its mortgage interest exceeds the total amount payable under the policy. According to Plaintiff, "[t]he jurisprudence has always held" that provisions like the Clause at issue here "creates a right, which can be enforced by the lender, in a direct action against the insurer."
Moreover, Plaintiff contends, the distinction between an open clause and a Union clause is only relevant "when the insured has violated a policy provision that would cause the insured to deny coverage." Here, Plaintiff avers, no such violation has been claimed. Nonetheless, Plaintiff argues that Defendant incorrectly characterized the mortgage clause at issue here as an open clause. Rather, Plaintiff asserts, the disputed mortgage clause contains language establishing that it is a Union or standard clause, under which there is "no doubt" that it has a direct right of action against Defendant under Louisiana law.
Plaintiff argues that if Defendant is concerned about being required to pay claims against it twice, then it is entitled to initiate an interpleader (or, in Louisiana, a concursus) proceeding to determine the parties' entitlement to payment before it pays. Plaintiff maintains that Defendant's chosen method of payment is insufficient where, as here, the parties are unable to resolve their disagreements about their entitlement to payment under the policy. Instead of "simply dropping the multiple payee check into the midst of the payees and encouraging them to fight it out, " Plaintiff asserts, Defendant "is required by its policy to actually pay the claim." In light of this obligation, Plaintiff argues, interpleader is the proper procedure to follow to safeguard the disputed funds until claimants' interests are determined. In the present case, Plaintiff contends, it is entitled to the entire amount payable under the policy, and Neely is entitled to nothing; therefore, Plaintiff maintains, it has stated a claim upon which relief can be granted.
C. Defendant's Reply
In further support of the instant motion, Defendant argues that Plaintiff has cited no authority supporting the assertion that "an insurer is required to issue the property damage check solely in the mortgagee's name, " ...