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.