Understanding the Rights of Mortgagee and the Loss Payee Clause
Posted on Mon, May 02, 2011
Understanding insurance can be complex. Gougeon Insurance Brokers have also designed a certificate of insurance checklist that you can download free along with this blog to help you better be equipped. Download the free certificate of insurance checklist here and read on to help understand the rights of mortgagees and the Loss Payee Clause.
When a third party has a financial interest in the property of a first party (the Insured) they are referred to as a Loss Payee or a 
Mortgagee.
A loss payee is a secured party named in the insurance policy who will receive payment in the event of a loss on those items for which they have a financial interest. This is put into place by use of a Loss Payee Clause which forms part of the Insurance contract allowing for payment being made, in the event of a loss, to this third party rather than the Insured.
For example a client purchases a riding lawnmower from a third party and finances the purchase through them. The third party is added as a Loss Payee securing their financial interest in the lawnmower making them the beneficiary of any payments in the event of an insured loss to that item.
A mortgagee is basically a Loss Payee but in these cases they are dealing with Real Estate property. The mortgagee is a lender who provides money to the owner of the property and as such would be added to the insurance policy as the mortgagee thus protecting their financial and insurable interest on such property.
The mortgagee is granted rights under the terms of the insurance contract that allow for the protection of their financial interest. A key component of these rights being that improper or negligent acts by the Insured will not affect the rights of the mortgagee.
For example, an act of arson committed by the Insured, while being excluded under the terms of the policy will still respond to the financial interest of a mortgagee.
When adding either a Loss payee or Mortgagee it is normally done as a condition under which an item or property has been leased or purchased. These terms are set by lenders to protect their financial interest in the event of a loss.
A Certificate of Insurance Checklist is designed to ensure that you have the appropriate paperwork required for each individual to operate on your property or on your behalf. You can download this free certificate of insurance checklist here!