Homeowner loses appeal seeking to have insurance settlement pay her attorneys

An Indianapolis woman whose property fell into foreclosure after her house burned was unable to convince the Court of Appeals of Indiana that her mortgage allowed for part of the insurance payment to cover her attorney fees.

Mary Flannagan had a mortgage on property in Indianapolis. In February 2017, a fire destroyed the house on the property.

Flannagan retained the firm that was then known as Tate Bowen Daugherty Funk Spandau LLC in June 2017. In October 2018, State Farm Casualty Insurance Co. issued two settlement checks totaling $74,373.23.

However, in July 2018, Lakeview Loan Servicing LLC had initiated foreclosure proceedings on the property. Flannagan filed for declaratory judgment, seeking a declaration that Lakeview and the mortgage servicer, LoanCare LLC, did not “have an interest in the [Hazard Insurance Proceeds], specifically allocated for the Plaintiff’s attorney fees, and/or for a declaration from the Court as to the extent of [Lakeview and LoanCare’s] interest in the [Hazard Insurance Proceeds].”

In April 2020, Flannagan filed a motion for partial summary judgment against Lakeview “on the issue of the amount of money that should be paid to Tate & Bowen from the money paid by State Farm for the fire claim.”

Lakeview responded with a cross-motion for partial summary judgment requesting judgment in the amount of $102,119.17 against Flannagan. Also, the mortgage holder requested an order declaring that LoanCare was entitled to all insurance proceeds issued by State Farm until the judgment was satisfied.

The Marion Superior Court denied Flannagan’s motion and granted Lakeview’s cross-motion. The court entered judgment against Flannagan in the amount of $97,665.37 and ordered that LoanCare was entitled to all insurance proceeds issued by State Farm.

The Court of Appeals affirmed in Mary M. Flannagan v. Lakeview Loan Servicing, LLC, City of Indianapolis Department of Business & Neighborhood Services, and State of Indiana, 21A-MF-2043.

On appeal, Flannagan argued the mortgage did not control the distribution of the entire amount paid pursuant to the State Farm insurance policy because the term “insurance proceeds” was not defined in either the mortgage or policy. She claimed the term referred to the hazard insurance proceeds less the cost of her attorney fees.

As part of her argument, Flannagan asserted that “proceeds” referred to the “net amount received (as for a check or from an insurance settlement) after deduction of any discount or charges.” In addition, she pointed to the Merriam-Webster Dictionary, which defines “proceeds” as including “the total amount brought in.”

However, the Court of Appeals took a close reading of the mortgage and determined the plain language did not support Flannagan’s interpretation of the phrase “insurance proceeds.” In particular, the section of the mortgage titled “Fire, Flood, and Other Hazard Insurances” provided that upon a loss, the insurance company is to make the payment directly to the lender instead of to the borrower and lender jointly, the court ruled.

“The Mortgage does not expressly refer to a partial distribution of insurance proceeds or, at least where the proceeds do not exceed the amount of the mortgagor’s indebtedness, to a distribution of a portion of the insurance proceeds to the lender and a portion of the proceeds to the mortgagor,” Judge Elaine Brown wrote for the appellate court. “Also, the Mortgage does not suggest the amount of insurance proceeds to which the lender is entitled must be reduced by an amount equal to the costs or attorney fees incurred by the mortgagor to secure the proceeds.”