The Fifth Circuit Establishes an Important Framework for Louisiana Homeowners to Prevail Under Forced-Placed Insurance Policies

Residential property damage attorneys who represent policyholders for any length of time will eventually come across a client who has a forced-placed policy. A forced-place insurance policy, also known as lender-placed insurance, is a type of hazard insurance obtained by a mortgage servicer on behalf of the owner or assignee of a mortgage loan when the borrower fails to maintain or renew the required insurance coverage on the property securing the loan. This insurance is designed to protect the lender’s interest in the collateral property rather than the borrower’s interests.

In Williams v. Integon National Insurance Company, ¹ the homeowner’s property was substantially damaged by Hurricane Ida. However, the property was insured under a lender-placed insurance policy, with the named insured being the mortgage holder, and not Williams. Williams argued she was a third-party beneficiary under the insurance policy, while Integon contended she lacked standing as she was not a named or additional insured. The district court sided with Integon, dismissing the case without allowing Williams to amend her complaint, citing futility.

The United States Court of Appeals for the Fifth Circuit reversed the district court’s decision, finding that Williams should be allowed to amend and plead plausible facts supporting her status as a third-party beneficiary. The appellate court emphasized that the loss payment provision in the policy clearly manifested an intent to benefit Williams, as it allowed for payments to her if the loss exceeded the mortgage holder’s insurable interest.

The Fifth Circuit applied Louisiana law, which allows for stipulations pour autrui, ² or third-party beneficiary contracts. The court evaluated three criteria to determine third-party beneficiary status: clear intent to benefit the third party, certainty of the benefit, and whether the benefit is more than incidental. The court found that the policy’s language met these criteria, particularly noting that Williams could potentially demonstrate that her damages exceeded the mortgage holder’s insurable interest, thus entitling her to a certain benefit.

This decision highlights the importance of policy language in determining third-party beneficiary status in lender-placed insurance policies. It underscores that benefits to borrowers in such policies are not merely incidental if the policy explicitly provides for payments exceeding the lender’s interest. The case provides a framework for Residential property damage attorneys and hurricane claims attorneys who represent borrowers to potentially claim benefits under similar circumstances, provided they can demonstrate the certainty of the benefit.

The Fifth Circuit’s decision to allow Williams to amend her complaint suggests a departure from, if not complete rejection of, the line of cases suggesting dismissal was the appropriate remedy in cases of forced-placed policies, and a more reasonable approach towards granting leave to amend when justice requires.

¹ Williams v. Integon Nat’l Ins. Co., 132 F.4th 801 (5th Cir. 2025).

² In the civil law of Louisiana, Stipulation pour autrui is a French legal term [‘Stipulation for others’] that refers to a contract clause that benefits a third party who is not a party to the contract.