Mortgagee Clause and Misrepresentation of Insured

 

February 12, 2013

 

If an HO-2 Policy in Tennessee has been rescinded due to misrepresentation on the application by the homeowner, does the mortgage company also lose its rights under the policy to file a claim?

Texas Subscriber

Couch on Insurance Third Edition states in § 65:65 that if the mortgagee clause states that the mortgagee's interest shall not be invalidated by any act or neglect of the mortgagor, including misrepresentations or false statements of the mortgagor, then the clause makes a new contract between the mortgagee and the carrier and the mortgagee is entitled to payment of the claim. The ISO HO 00 02 05 11 mortgagee clause does not read that way; the form states that a denial of a claim does not affect the mortgagee if the mortgagee fulfills certain conditions.

In NATIONWIDE MUTUAL INSURANCE COMPANY, v. Robbin T. HUNT and First Citizens Bank, as Custodian for Don E. Taylor, IRA, the court ruled that even though the policy language was a standard mortgage clause, that the mortgagee was entitled to payment even though the insured committed fraud and misrepresentation and the policy was void ab initio. Therefore there is coverage for the mortgagee.