I have received several requests in the last couple of years to add mortgagees as loss payees on commercial structures but not just with respect to the lender's direct interest in the mortgage on the building. Some also request to be added as loss payees with respect to business income or rental income derived from the building.

We do not have a loss payee or mortgagee endorsement to accomplish this, and there is a general feeling that providing loss payee status to a lender (with respect to loss of rents) is something that we should not do.

What is the rationale for not doing so, other than it is something that traditionally has not been done?

New Jersey Subscriber

The Insurance Services Office (ISO) does not provide an endorsement for adding a loss payee for business income. The issue is also not addressed in the Commercial Lines Manual. On the flip side, there is nothing stating that it cannot be done—there just does not appear to be an avenue for doing it. Of course, individual carriers may provide such an endorsement or rules as an underwriting choice.

As for a rationale for not adding mortgagees as loss payees for business income or rental income, insurable interest comes into play. What is the mortgagee's interest in the business or rental income, as opposed to the property itself? One can see why the mortgagee might want to be added—to ensure it continues to receive mortgage payments during the period of restoration—but the mortgagee does not have an insurable interest in business income.