standard mortgage clause

standard mortgage clause

A clause in a fire and casualty insurance policy providing additional coverage for the mortgage lender and also providing that the lender's rights to recover proceeds will not be compromised if the borrower is guilty of wrongdoing relative to the insured loss.Also called a union mortgage clause.Contrast with an open mortgage clause.

Example: Ted cannot make his mortgage payments and fears foreclosure, so he burns down his house to collect the insurance proceeds. Unfortunately, his neighbor saw the whole thing and alerted the police. Ted will not be able to collect any insurance money, but his mortgage lender will because it was not involved in the wrongdoing.

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References in periodicals archive ?
Sullivan, The Standard Mortgage Clause in Property Insurance Policies, 33 Tort & Ins.
1987) (applying Vermont law and stating that "Despite the separate nature of a standard mortgage clause, reference to the policy is necessary to determine the limits of the insurance coverage to which the mortgagee is entitled.).
Interestingly, the union or standard mortgage clause is a type of clause that creates an independent contract between the insurance company and the lender.
1912) (lender held to be entitled to coverage under standard mortgage clause for destruction by fire of the insured premises, where the evidence failed to show the lender knew the insured had transferred title to the property).
The innocent co-insured rule swept much of the country and created an economic disincentive for fighting suspected fraudulent claims because not only the mortgagee (under a standard mortgage clause) but the innocent co-insured could also recover.
However, the court found that, while the language was not identical to the language contained in a standard mortgagee clause that the West Virginia legislature had declared, the standard mortgage clause was the exclusive form of fire insurance to be used in the state.

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