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Mortgagee's rights | Zalma on insurance



Watch the full video at https://youtu.be/fnta0i2LMYQ and at https://rumble.com/vp0rmu-the-rights-of-mortgagees.html

sedan Real Estate are often encumbered by mortgages, most first party property insurances contain provisions that protect the mortgagee's interests in the event that the insured property is damaged or destroyed.

Historically, there have been two types of mortgage clauses:

  1. a loss to be paid or open mortgage clause, which only stipulates that a loss shall be paid to the mortgagee as interest may occur. Most courts have interpreted the term "as interest may appear" as referring not to the mortgagee's interest in the insured property, but rather to the debt owed to the person secured by the mortgage or deed of trust.
  2. the standard or union mortgage clause ( form 438 BFU NS), which states, in addition to the provision for liability, that the mortgagee's interest in the insurance's income shall not be invalidated by any act or omission of the mortgagor.

Where an insurer issues a policy with the knowledge that the property is subject to a mortgage , and in fact, the policy itself contains a standard mortgage clause that extends coverage to mortgage holders, there is no extra risk. At the time of issuing the insurance, it was foreseeable that a mortgagee could take possession and control of the property in the event of bankruptcy.

A trade union mortgage clause in an insurance policy creates a separate agreement between the mortgagee and the insurer. [ Vargas v. Nautilus Ins. Co 248 Kan. 881, 887, 811 P.2d 868 (1991); see also Neises v. Solomon State Bank 236 Kan. 767, 778, 696 P.2d 372 (1985); Iron Horse Auto v. Lititz Mut. Ins . Co., 156 P.3d 1221, 283 Kan. 834 (Kan. 2007)

A standard mortgage clause creates an independent contract between the insurer and the mortgagee that prevents the mortgagee's interest from being annulled by the mortgagee's behavior. [ Allen, 167 Minn. at 149–50, 208 N.W. at 817–18 (citing Syndicate Ins. Co. v. Bohn 65 F. 165, 178 (8th Cir.1894)); Magoun v. Fireman's Fund Ins. Co 86 Minn. 486, 490, 91 N.W. 5, 7 (Minn. 1902).]

Every first-party property adjuster must understand the effect of a standard mortgage clause on claims management and that even if it is proven that the insured has intentionally committed the crime of arson and burned down his house, the mortgagee can still recover from the insurer up to its security interest.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to the position of insurance consultant specializing in insurance coverage, handling insurance claims, bad faith and near-insurance for insurers and policyholders.

He also acts as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims management and more than 54 years in the insurance industry.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

He is available at http://www.zalma.com and zalma@zalma.com. Zalma is the first recipient of the first annual Claims Magazine / ACE Legend Award. For the past 53 years, Barry Zalma has devoted his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to enable insurers and their claimants to become professionals in insurance claims.

Go to the training available at https://claimschool.com; articles at https://zalma.substack.com, the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr Zalma on Twitter at https://twitter.com/bzalma ; Go to Barry Zalma videos at https://www.rumble.com/zalma; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ T the last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud- letter -2 / podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4


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