If you assume your mortgage company will pay your flood insurance premiums, is the mortgage company liable for damage to property after failing to pay such premiums? In Burks v. Prudential Ins. Co. of North Am., 2009 U.S. Dist. LEXIS 65451 (E.D. La. July 29, 2009), the court answered "no."
Burks purchased her property in June 2003 and entered a mortgage agreement with Principal Mortgage, Inc. Burks also purchased a Standard Flood Insurance Policy pursuant to the National Flood Insurance Program. Prudential was the "Write Your Own" private insurance carrier for the flood policy. The mortgage agreement provided for Burks to insure the property against certain losses. Burks alleged she arranged for her flood insurance premium to be paid through her mortgage company, Principal Mortgage.
Burks' property was damaged by Hurricane Katrina. She thereafter learned that Principal Mortgage and its successor, CitiMortgage, failed to insure that her mortgaged property against flood. Although CitiMortgage had been previously dismissed, Principal Mortgage had not. Burks now argued Principal violated its fiduciary duty to her by altering and/or abandoning the policy and failing to procure flood insurance.
CitiMortgage moved for summary judgment, arguing the undisputed facts established that Principal, like its successor-in-interest CitiMortgage, had no duty to Burks to procure or maintain flood insurance. The mortgage agreement did not require flood insurance and made the home- buyer responsible for any policies issued.
The district court granted CitiMortgage's motion. The rights, duties and obligations were defined by the mortgage agreement. The mortgage agreement did not require flood insurance because the property was not in a special flood hazard area as defined by statute. Therefore, the mortgage company had no duty to procure or pay for flood insurance. Instead, the mortgage agreement placed responsibility for procuring flood insurance on Burks. The court's prior dismissal of all flood related claims against CitiMortgage was dispositive of any attempted claims against Principal as predecessor-in-interest.
