Mortgagee Subject to Policy Provisions

If the insured is in violation of the policy's coinsurance clause and his loss settlement is being reduced as a result, how does that affect a mortgagee listed on the policy? Here is an example: the value of the building at the time of loss is $1,000,000; coinsurance required is 80 percent; the amount actually carried at the time of loss is $400,000; amount of loss to building is $600,000. In this case, the insured would be 50 percent underinsured and would receive $300,000 But, the bank, which is named on the policy as mortgagee, has a $400,000 outstanding loan. How much will the bank be paid?

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