In Conyers v. Balboa Insurance Company, the United States District for the Middle District of Florida was asked to decide how does a foreclosure impact one’s insurable interest in property. In that case, the Conyers sought to recover from the Balboa Insurance Company (“Insurance”) money for damage caused to their property by a sinkhole. Under the Conyers’ mortgage, there was a condition that required them to carry hazard insurance. When they failed to do this, the Mortgage Servicer bought a lender-placed insurance policy (“Policy”) at the Conyers’ expense. The Policy named the Mortgage Servicer as the named insured and the Conyers as the Borrowers. Soon after, the Mortgage Servicers began foreclosure proceedings against the Conyers. The Conyers then notified Insurance of the loss incurred by the sinkhole. Their claim was denied. The Conyers then initiated their lawsuit as a third-party beneficiary and Insurance moved for summary judgement on four grounds.
First, Insurance argued that the foreclosure proceedings divested the Conyers of all interest in the property so that the Conyers did not have standing. The Court disagreed and held that, in Florida, an insurable interest is determined by whether the insured has a substantial economic interest in the property. The Court found that the right to receive insurance proceeds is fixed at the time of loss and subsequent foreclosure proceedings do not extinguish an economic interest unless the underlying debt was discharged in full. Therefore, since the Conyers’ debt was not discharged in full, they had standing to pursue the claim.
Second, Insurance alleged that the Conyers lacked standing because they were not named insureds or additional insureds under the policy. The Court again disagreed and stated that in Florida, an insurance company’s promise to pay can be enforced by a third-party beneficiary and the Conyers were third-party beneficiaries, giving them the requisite standing to proceed.
Third, Insurance stated that the Conyers had no residual available to them as borrowers under the Policy. The court found that focusing on whether residual amounts of insurance are available to the Conyers was irrelevant at the time because the Conyers were entitled to pursue a claim against Insurance in light of the Mortgage Servicer’s failure to pursue a claim as the named insureds under the Policy.
Last, Insurance claimed that the Conyers were not entitled to attorney fees and the court agreed finding that, pursuant to F.S. § 627.428, third-party beneficiaries are not entitled to attorney fees.