Court: Servicer Can 'Force-Place' Terror Insurance

A servicer is free to "force-place" terrorism insurance if the borrower refuses to get the insurance, a U.S. District Court in New York has ruled in a case initiated by Dallas-based Omni Berkshire Corp. against Wells Fargo.Kathryn O' Neall, a managing director with the Wells Fargo commercial mortgage servicing group, said she believes this is the first decision upholding the right of a servicer to force-place terrorism insurance. In rendering the decision, District Judge Denny Chin said that while terrorism insurance could not be required under the "all risk" policy, Wells Fargo "acted reasonably in requiring Omni to purchase terrorism insurance under the 'other insurance' clause" of the loan agreement. The judge has given Omni 30 days from Feb. 25 to obtain $60 million in terrorism insurance coverage on five hotel properties that are the collateral for a $250 million loan that is part of a $1.8 billion commercial mortgage-backed securities offering. If Omni fails to do so, Wells Fargo is free to force-place the insurance at Omni's expense. Omni's general counsel had not returned a call seeking comment on the ruling by MortgageWire's deadline.