Q

We insure a large property valued at over a million dollars. The mortgagee foreclosed on the property. Shortly after this, there was a fire and nearly $700,000 in damage resulted.

What is the extent of the obligation of the insurance company to the owner of the property after the mortgage company has obtained foreclosure?

New York Subscriber

A

The insurer's obligation to the mortgage company is determined not so much by the value of the loss as the amount of debt owing on the mortgaged property. That is the mortgage company's insurable interest. Presumably, the debt in this case is in excess of the $700,000 loss.

The insurer's obligation to the named insured owner is the value of the loss limited to the (former?) owner's insurable interest. And if the owner can show any insurable interest at all, we believe the insurer may be courting legal jeopardy to issue a draft payable only to the mortgage company. In fact, this is so much more a matter of law than of insurance, we would counsel insurance people to leave it to the lawyers.