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Brown v. American Modern Home Insurance Co.

United States District Court, E.D. Louisiana

May 24, 2017

ROBIN GUTHRIE BROWN AND MICHELLE GUTHRIE BROWN
v.
AMERICAN MODERN HOME INSURANCE COMPANY, ET AL

         SECTION "S" (1)

          ORDER AND REASONS

          MARY ANN VIAL LEMMON UNITED STATES DISTRICT JUDGE

         IT IS HEREBY ORDERED that American Modern Home Insurance Company's Motion to Dismiss Pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure (Doc. #46) is GRANTED, and plaintiffs' claims against American Modern Home Insurance Company are DISMISSED WITHOUT PREJUDICE.

         IT IS FURTHER ORDERED that American Security Insurance Company's Motion to Dismiss (Doc. #48) is GRANTED, and plaintiffs' claims against American Security Insurance Company are DISMISSED WITH PREJUDICE.

         IT IS FURTHER ORDERED that Ocwen Loan Servicing, LLC's Rule 12(b)(1) and Rule 12(b)(6) Motion to Dismiss for Failure to State a Claim on which Relief Can be Granted (Doc. #47) is GRANTED, and plaintiffs' claims against Ocwen Loan Servicing, LLC are DISMISSED WITHOUT PREJUDICE.

         IT IS FURTHER ORDERED that plaintiffs are granted leave to file an amended complaint within 15 days of the date of this order to allege claims against American Modern Home Insurance Company and Ocwen Loan Servicing, LLC as specified herein. Judgment will be entered in defendants' favor if an amended complaint complying with this order is not filed within 15 days of the date of this order.

         BACKGROUND

         This matter is before the court on a motions to dismiss filed by defendants, Ocwen Loan Servicing, LLC, American Security Insurance Company and American Modern Home Insurance Company. Defendants argue that this suit should be dismissed because plaintiffs, Robin Guthrie Brown and Michelle Guthrie Brown, do not have standing to pursue claims against defendants as plaintiffs are not third-party beneficiaries under the homeowners' insurance policies that their mortgagee, Ocwen, procured for the property after plaintiffs failed to supply satisfactory proof of insurance.

         Plaintiffs own a home in Belle Chasse, Louisiana. Ocwen holds the mortgage on the property. Because plaintiffs did not provide sufficient proof of insurance, Ocwen obtained forced-placed homeowners' insurance policies on the property to protect its interest. American Security underwrote a policy with effective dates of August 23, 2014, to August 23, 2015, which stated that Ocwen was the insured and plaintiffs were the “Borrowers.” American Modern underwrote a policy with effective dates of January 1, 2015, to January 1, 2016, which stated that Ocwen was the insured.

         On May 19, 2015, lightning hit plaintiffs' home and caused damage. Robin Guthrie Brown notified Ocwen and American Security and made an insurance claim. American Security inspected the damages and paid $31, 615.55, listing Ocwen and plaintiffs as payees on the check.

         On July 29, 2015, lightning struck the home again, causing more damage. Robin Guthrie Brown notified Ocwen and American Security. American Security found that there was no additional damage.

         On March 7, 2016, plaintiffs' home experienced a power surge, which caused damage to various electrical systems and appliances. Robin Guthrie Brown notified Ocwen and American Modern. American Modern found that there was no coverage for the claimed damage and that there was no additional damage other than that caused by the previous lightning strikes.

         On November 10, 2016, plaintiffs filed this action against American Security, American Modern and Ocwen. Defendants filed motions to dismiss. Plaintiffs responded by filing a superseding amended complaint. In the amended complaint, plaintiffs allege that they are beneficiaries of the insurance policies because they are listed as “borrowers” in the policies and paid the insurance premiums through Ocwen. Plaintiffs claim that they must be beneficiaries of the American Security insurance policy because they were listed as payees on the $31, 615.55 insurance proceeds check. Plaintiffs also cite provisions of the American Modern policy that impose duties and obligations on them as evidence that they are beneficiaries of that insurance policy.[1] Plaintiffs allege that American Security and American Modern breached the insurance contracts by failing to properly pay and are liable for penalties and attorneys' fees under Louisiana Revised Statutes §§ 22:1892 and 22:1973. Plaintiffs allege that Ocwen is liable for detrimental reliance because they relied on Ocwen to acquire insurance on their behalf in the event that their homeowners' insurance lapsed, and that Ocwen has refused to make claims on the policies. Plaintiffs also seek to have Ocwen joined as an involuntary plaintiff to this action against the insurance companies.

         American Security and American Modern filed motions to dismiss the amended complaint under Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. The insurers argue that plaintiffs' claims should be dismissed pursuant to Rule 12(b)(1) due to lack of standing because plaintiffs are not named insured, additional insured, or third-party beneficiaries under the insurance policies. American Security and American Modern also argue that plaintiffs' claims should be dismissed pursuant to Rule 12(b)(6) for failure to state a claim because they have not properly alleged, and cannot demonstrate, that they are third-party beneficiaries under the insurance policies. Ocwen argues that plaintiffs do not have a claim against it for detrimental reliance and it is not an indispensable party to this litigation. Further, Ocwen argues that if it were added as an involuntary plaintiff, this court would lack diversity subject matter jurisdiction over this matter because both Ocwen and American Security are citizens of Delaware.

         ANALYSIS

         I. American Modern's and American Security's Motions to Dismiss (Docs. # 46 & 48)

         A. Rule 12(b)(1) of the Federal Rules of Civil Procedure

         "Motions filed under Rule 12(b)(1) of the Federal Rules of Civil Procedure allow a party to challenge the subject matter jurisdiction of the district court to hear a case.” Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001). Constitutional standing is an element of subject matter jurisdiction that may be challenged under Rule 12(b)(1). See Moore v. Bryant, 853 F.3d 245, 248 (5th Cir. 2017). A district court may dismiss a matter pursuant to Rule 12(b)(1) “on any one of three separate bases: (1) the complaint alone; (2) the complaint supplemented by undisputed facts evidenced in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts.” Id. (quotation omitted). In a 12(b)(1) motion, the party asserting jurisdiction bears the burden of proof that jurisdiction does in fact exists. Ramming, 281 F.3d at 161.

         Under Article III of the Constitution of the United States, a litigant must have “‘standing' to invoke the power of the federal court.” Allen v. Wright, 104 S.Ct. 3315, 3324 (1984). “‘In essence the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of a particular issue.'” Id. (quoting Warth v. Seldin, 95 S.Ct. 2197, 2205 (1975)). The party seeking to have claims redressed by the federal court must establish the elements of standing for each claim that he seeks to press. Lujan v. Defenders of Wildlife, 112 S.Ct. 2130, 2136 (1992); DaimlerChrysler Corp. v. Cuno, 126 S.Ct. 1854, 1867 (2006). Absent Article III standing, a federal court does not have subject matter jurisdiction to address a plaintiff's claims, and the claim must be dismissed. U.S. Const. art. 3, § 2, cl. 1.

         Standing has constitutional and prudential requirements. Standing, at its “irreducible constitutional minimum, ” requires a plaintiff to demonstrate that: (1) he has suffered an “injury-in-fact”; (2) the injury is fairly traceable to the defendant's actions; and (3) that the injury will likely be redressed by a favorable decision. Lujan, 112 S.Ct. at 2136. An “injury-in-fact” is “an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical.” Webb v. City of Dall., Tex., 314 F.3d 787, 791 (5th Cir. 2002).

         In Cotton v. Certain Underwriters at Lloyd's of London, 831 F.3d 592, 593 (5th Cir. 2016), the plaintiffs' mortgagee, First American Bank and Trust, obtained forced-placed flood insurance on plaintiffs' properties from Certain Underwriters at Lloyd's of London (“Lloyd's”). Plaintiffs' properties sustained flood damages during Hurricane Isaac. Id. First American made a claim under the Lloyd's policy, and Lloyd's paid for some damages. Id. Plaintiffs sued Lloyd's for additional flood insurance payments. Id. The United States Court of Appeals for the Fifth Circuit found that, although plaintiffs were not named or additional insureds or third-party beneficiaries of the insurance policies, they had Article III standing to bring a claim against Lloyd's because the requirements of constitutional standing are satisfied in that they were harmed by Lloyd's paying an insufficient amount on the flood insurance claim and they would indirectly benefit from a ruling against Lloyd's. Id. at 595.

         The court explained that there is a difference between Article III standing and “standing” that “describe[s] whether a party has a right to sue under a contract.” Id. at 594-95. The second type of “standing” “is really an issue of ‘contract interpretation' that goes to the merits of a claim.” Id. at 594 (citing Perry v. Thomas, 107 S.Ct. 2520, 2527 (1987)). The court further recognized that in Williams v. Certain Underwriters at Lloyd's of London, 398 Fed.Appx. 44, 47 (5th Cir. 2010), it found that the plaintiffs did not have Article III standing to sue Lloyd's on a force placed insurance policy when they were not named or additional insured or third-party beneficiaries of the policy. Id. at 595. However, the court reasoned that Williams did not control because it was “nonprecedential” and

predated a more recent Supreme Court case that reiterated that “the question whether a plaintiff states a claim for relief ‘goes to the merits' in the typical case, not the justiciability of a dispute, and conflation of the two concepts can cause confusion.” See Bond v. United States, 564 U.S. 211, 219, 131 S.Ct. 2355, 180 L.Ed.2d 269 (2011) (citation omitted). Contrary to that clarification, Williams based its “no standing” holding on a Louisiana case that treated the issue as one of failure to state a claim. See 398 Fed.Appx. at 47 (citing Joseph v. Hosp. Serv. Dist. No. 2 of Par. of St. Mary, 939 So.2d 1206, 1215 (La. 2006) (finding that the alleged breach of a contract between a hospital and a medical corporation did not create a cause of action in favor of individual doctors affiliated with the medical corporation because the contract did not create a stipulation pour autrui in favor of the doctors)).

Id.

         Considering Cotton, regardless of whether plaintiffs are additional or named insureds or third-party beneficiaries under the American Security or American Modern insurance policies, they have Article III standing to state claims against the insurers because they were allegedly harmed by underpayment of insurance proceeds and they would indirectly benefit from judgment against the insurers. The issue of whether plaintiffs have “standing” ...


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