Property insurance policies typically contain a “Mortgage Clause” condition that reads along these lines (bear with me, the condition is a bit wordy):
The word ‘mortgagee’ includes trustee.
If a mortgagee is named in this policy, any loss [under the structural damage aspects of this policy] shall be paid to the mortgagee and you, as interests appear. If more than one mortgagee is named, the order of payment shall be the same as the order of precedence of the mortgagees.
If we deny your claim, that denial shall not apply to a valid claim of the mortgagee, if the mortgagee: a. Notifies us of any change in ownership, occupancy or substantial change in risk of which the mortgagee is aware; b. Pays any premium due under this policy on demand if you have neglected to pay the premium; c. Submits a signed, sworn statement of loss within sixty (60) days after receiving notice from of us of your failure to do so. Policy conditions relating to Appraisal, Suit Against Us and Loss Payment apply to the mortgagee.
If we decide to cancel or not to renew this policy, the mortgagee will be notified at least ten (10) days before the date cancellation or nonrenewal takes effect.
If we pay the mortgagee for any loss and deny payment to you: a. We are subrogated to all the rights of the mortgagee granted under the mortgage on the property; or b. At our option, we may pay the mortgagee the whole principal on the mortgage plus any accrued interest. In this event, we shall receive a full assignment and transfer of the mortgage and all securities held as collateral to the mortgage debt.
Subrogation shall not impair the right of the mortgagee to recover the full amount of the mortgagee’s claim.
Regarding the paragraph beginning with “[i]f a mortgagee is named,” insurance companies will invariably insist on listing your mortgagee as a payee on claim checks. After that, you are left with the sometimes challenging task of getting the mortgagee to endorse the check to free up the funds for you to repair your damaged property. Lest you end up like Mr. Bean, beware of what your mortgage documents say regarding a mortgagee’s rights to insurance proceeds.1
Regarding the paragraph beginning with “[i]f we deny your claim,” this portion of the “Mortgage Clause” most often comes into play when a property is foreclosed. And the extent of the mortgage company’s insurable interests will often hinge on whether foreclosure took place before or after a loss.2
Regarding the paragraph beginning with “[i]f we pay the mortgagee,” beware of an insurance company denying your claim to obtain ownership of your home. If it is discovered this was a motivating factor behind denial, well, I submit Sections 624.155 and 626.9541 of the Florida Statutes are likely to factor into prospective litigation.
To read previous posts in my series on insurance policy conditions, click here.
P.S. Unless someone has a specific request for another blog article in this series, this is likely the final post. My next blog series will be dedicated to policyholder-favorable discovery orders.
1 Bean v. Prevatt, 935 So. 2d 557 (Fla. 2d DCA 2006). Mr. Bean’s mortgagee insisted on applying insurance proceeds to pay down the principal on the loan, which left Mr. Bean holding the bag on trying to repair his damaged property. Due to the clear language of the mortgage documents, the Court was reluctantly unable to do anything about the mortgagee’s insistence.
2 See, e.g., Secured Realty Inv. Fund, Ltd., III v. Highlands Ins. Co., 678 So. 2d 852 (Fla. 3d DCA 1996). Cf, e.g., Lenart v. Ocwen Fin. Corp., 869 So. 2d 588 (Fla. 3d DCA 2004).