Property Insurance FundamentalsQuestion 153 of 474
A homeowner deliberately sets fire to her insured house to collect insurance. The mortgagee on the policy is named under a STANDARD (Union) mortgagee clause. What is the most likely outcome?
a.The mortgagee is paid up to the unpaid loan balance; the insured is denied for intentional loss, and the insurer is subrogated against the insured for any amount paid to the mortgagee
b.Both the insured and the mortgagee are paid in full, because the standard clause makes the policy a joint contract under which the insurer waives every defense it would otherwise have against the named insured
c.Neither the insured nor the mortgagee is paid, because the arson is a material misrepresentation that makes the policy void from inception and extinguishes the mortgagee's separate interest along with it
d.The mortgagee is denied, because the standard clause protects the lender only against the insured's failure to pay premium and not against the insured's own intentional acts, which void the whole contract
Explanation
Under a STANDARD mortgagee clause the mortgagee's rights are NOT defeated by the insured's acts or neglect. So the lender is paid up to its loan balance. The insured is denied for intentional loss, and the insurer is subrogated to the lender's note — the insurer can collect from the insured what it paid the lender. Under an OPEN mortgagee clause the lender would also be denied.
Law Reference: Standard mortgagee clauseThis topic, taught in full in the Personal Lines Insurance Producer guide. Personal Lines Insurance Producer — Complete Study Guide (2026) — PDF + EPUB, $19.99 · 14-day refund →
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