Q

Our company issues mortgages, and we are named as a mortgagee on the insurance policies of these borrowers. Many of the insurance policies include a protective safeguard endorsement, form IL 04 15. Does the standard mortgage clause on property policies protect a lending institution against a loss that may be limited by the protective safeguards endorsement?

Ohio Subscriber

A

In general, a standard or union mortgage clause provides coverage for the mortgagee even when the insured does something to invalidate the coverage for himself. This would include, but not be limited to, the insured disconnecting a required protective safeguard, such as a sprinkler system. However, coverage for the mortgagee could be voided if, for example, the mortgagee knew of the insured's action and failed to notify the insurer. In addition, the mortgagee could lose its protection if it knows of an increase in hazard and fails to notify the insurer. However, if the mortgagee is not aware—or could not be expected to be aware—of what the insured had done to void coverage, the mortgagee should retain coverage under the standard or union mortgage clause.