“Force-placed insurance” is an insurance policy placed by a lender or bank on a home or vehicle when the property owners’ own insurance is cancelled, has lapsed or is deemed insufficient. This insurance insures the lender and allows the lender to protect its financial interest in the property. It is rarely called the same thing twice, and is also known as “forced-place”, creditor-placed, lender-placed or collateral protection insurance. Subrogation professionals need to know that it presents unique challenges, especially from state to state.
Lienholders often require borrowers to obtain and maintain insurance on a vehicle, but, for various reasons, that insurance often lapses. A lienholder may then obtain coverage to the extent of the debt under a force-placed policy. Insurance companies that provide coverage under force-placed policies should be wary that “No Pay, No Play” may limit subrogation potential in Louisiana. Over the past two decades, several states have enacted “No Pay, No Play” auto insurance laws — and more states are considering the same course of action. Louisiana has been a leader in this area. Drivers without the minimum required liability insurance have a diminished ability to receive a settlement or judgment from a responsible third-party tortfeasor in the event of an accident. This is the state’s way of cutting the high cost of uninsured motorists.
Louisiana’s “No Pay, No Play” statute provides that “[t]here shall be no recovery … for the first twenty-five thousand dollars of property damage based on any cause or right of action arising out of a motor vehicle accident, for such … damages occasioned by an owner or operator of a motor vehicle involved in such accident who fails to own or maintain compulsory motor vehicle liability security.” La. R.S. § 32:8666. Arguably, a lienholder’s placement of insurance on a vehicle is insurance coverage on the vehicle and should be sufficient to satisfy the purposes of “No Pay, No Play.” Along those lines, a force-placed carrier should not be limited by “No Pay, No Play” in pursuing subrogation. However, there is case law in Louisiana that suggests that a force-placed carrier is prevented from subrogating if the borrower didn’t have the proper insurance coverage on the vehicle.
In North American Fire & Casualty Co. v. State Farm Mutual Auto Ins. Co., 856 So.2d 1233 (La. App. 2003), the borrower’s vehicle collided with another vehicle. Because the borrower did not maintain the proper insurance coverage on the vehicle, he was barred from recovering under “No Pay, No Play.” That’s the intended result under “No Pay, No Play.” However, the Louisiana court went further, barring the force-placed carrier from subrogating after it paid the vehicle damages, accepting the argument that because the borrower had no cause of action against the adverse neither did the force-placed carrier. The court rejected the argument that the force-placed carrier had a “separate and distinct” cause of action against the adverse.
Matthiesen, Wickert & Lehrer, S.C., who has a branch office in Louisiana, has for years assisted in the subrogation needs of force-placed carriers’ insurance for both real estate and automobiles in all 50 states. If you have any questions, please contact Gary Wickert at [email protected]. Let us know if we can be of assistance to you in recovering your force-placed claim dollars.