Mortgagee Clause In Insurance Policy | Mortgagee And Insurance

Mortgagee Clause in Insurance Policy

English Law: mortgagee clause in insurance policy

Mortgagee clause in insurance policy. A clause in a fire insurance policy, as taken out by a mortgagor, that refers to the interest of the mortgagee in the mortgaged property. The clause may require only that the mortgagee is informed if any claim is made under the policy; or, more usually, it requires that any money paid under the policy goes direct to the mortgagee to the extent of the amount of the mortgage, in which case it is usually called a loss-payable clause or an ‘open-mortgage clause’. A mortgagee has no claim upon money paid under an insurance policy taken out solely in the name of the mortgagor, but under a ‘loss-payable clause’ the mortgagee has a charge over the proceeds and any payment that would be due to the mortgagor may be paid to reduce the mortgage debt, even if the policy is in the name of the mortgagor  (Halifax Building Society v Keighley [1931] 2 KB 248; Anno: 9 ALR2d 299: Insurance—Lienor’s Rights).

English law: mortgagee clause in insurance policy

If a mortgage is made by deed, the mortgagee has the power to insure the mortgaged property against loss or damage by fire, and to add the premium to the mortgagor’s debt with equal priority (Law of Property Act 1925, s. 101(1)(ii)); unless there is a declaration in the mortgage deed that no insurance is required or the mortgagor has accepted an express obligation, or has agreed with the mortgagee to maintain the insurance (LPA 1925, s. 108(2)). (mortgage clause in insurance policy)

In US: mortgagee clause in insurance policy

In the US, if the mortgage documents require the mortgagor to insure the property for the benefit of the mortgagee, in the event of a payment under the insurance policy, the mortgagee is entitled to have the proceeds paid to reduce the mortgage debt (Sureck v. U.S. Fidelity & Guaranty Co., 353 F. Supp. 807 (DC Ark 1973)). However, if there is no provision for the mortgagee to be covered by the mortgagor’s policy, the mortgagee is not entitled to make any claim on that policy (Columbia Ins. Co. v. Lawrence, 10 Pet 507, 35 US 507, 9 L Ed 512 (1836)). Also called a ‘mortgagee insurance clause’ or sometimes a ‘mortgage clause’.  See also reinstatement basis, union mortgage clause.

Bibliographical references: mortgagee clause in insurance policy

R. Keeton & A.I. Widiss. Insurance Law (St. Paul, MN: 1988), § 4.2(c). (mortgagee clause in insurance policy)

Terms in bold, including loss-payable clause, mortgagee clause in insurance policy, reinstatement basis, union mortgage clause.

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