Welch and Boyd Obtain Dismissal in Property Coverage Dispute

Michael P. Welch and J’Naia L. Boyd were successful in obtaining a dismissal of plaintiff’s complaint in its entirety.

In this action, brought in the Western District of New York, plaintiff claimed that it was the mortgagee under a homeowner’s insurance policy and entitled to coverage for fire damage to the property. Welch and Boyd argued that, because plaintiff assigned the entirety of its interest as mortgagee to another bank prior to the loss, it was no longer the mortgagee under the policy and, therefore, lacked standing to bring the action. Moreover, although plaintiff remained named as the mortgagee on the policy well after the assignment and at the time of the loss, it still did not have an insurable interest in the property by virtue of its assignment.

In response, plaintiff argued that it could bring the action because it was the servicer of the mortgage held by the assignee bank and had initiated a foreclosure action on the property, naming the assignee bank as plaintiff. The Magistrate Judge rejected that argument and held that plaintiff was not the mortgagee on the policy by virtue of its assignment and, thus, did not have standing to maintain the action; and even as the loan servicer, plaintiff did not have an insurable interest in the property. The Magistrate Judge further determined that, regardless of its status as the mortgagee/loan servicer, plaintiff failed to preserve its insurable interest in any debt that may have remained after the foreclosure sale by filing for a deficiency judgment pursuant to RPAPL 1371.

Rather than have the Magistrate Judge’s report and recommendation confirmed by the District Court Judge, plaintiff stipulated to a dismissal of the action, with prejudice.