Loss or damage under this Policy shall be paid, as interest may appear, to you and the loss payee shown in the Declarations or in this endorsement. This insurance, with respect to the interest of the loss payee, shall not become invalid because of your fraudulent acts or omissions unless the loss results from your conversion, secretion or embezzlement of "your covered auto". However, we reserve the right to cancel the Policy as permitted by policy terms, and the cancellation shall terminate this agreement as to the loss payee's interest. We will give the same advance notice of cancellation to the loss payee as we give to the named insured shown in the Declarations.

When we pay the loss payee, we shall, to the extent of payment, be subrogated to the loss payee's rights of recovery.

Analysis:

The Loss Payee Clause endorsement is used when there is a loss payee shown in the declarations page that has an interest in the insured vehicle(s). Any claim for loss or damages will be paid to both insured insured and loss payee as it appears in the declarations. For example: John Smith has his auto loan with Super Auto Financing, which appears on the declarations page as the loss payee. If John totals the insured vehicle, the loss payment will be issued by the insurer to both John Smith and Super Auto Financing. The purpose of this is to make sure that the interest of the loss payee is protected in the event of a loss to the covered auto.

The interest of the loss payee is also protected with respect to the insurance policy in the event of fraudulent acts of omissions by the named insured, unless the loss results from the named insured's conversion, secretion or embezzlement of the covered auto. The coverage for the loss payee becomes invalid when there is a loss in which the named insured engages in such acts.

However, if the named insured makes fraudulent statements or engages in fraudulent conduct in connection with any accident or loss, the policy usually declares that the insurer will not provide coverage. The loss payee endorsement carves out an exception for the loss payee so that its interests will be covered. This part of the endorsement does not provide for any greater coverage to the loss payee than it does to the insured under the terms of the insuring agreement, conditions and exclusions of the underlying policy.

The endorsement also requires that the insurer gives advance notice of any policy cancellation in the same manner as it gives to the named insured. For example: John Jones fails to pay the premiums on the auto policy. The policy is going to lapse for non-payment of premium. The insurer must send the lapse and policy cancellation notices to both John and Superior Auto Finance.

In addition, when the insurer pays a claim on the policy, the insurer becomes subrogated to the loss payee's right to recovery.

As a final point, note that in the case of Boyd v. General Motors Acceptance Corp., 413 N.W.2d 683 (Mich.App. 1987), the court found that a loss-payable clause on an automobile policy does not provide greater coverage for a secured party than that provided for the owner of the car. In other words, the loss payee does not receive any more coverage than the named insured; that is, the exclusions and conditions and insuring agreement requirements apply to both the named insured and the loss payee.