Property Insurance FundamentalsQuestion 153 of 158
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.Both insured and mortgagee are paid, because arson is a covered peril
b.Neither the insured nor the mortgagee is paid, because the policy is void
c.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
d.The mortgagee is denied because lenders are never paid for intentional acts of the borrower
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 clausePractice all 158 questions free — no signup required.
Related questions on this topic
- Under most California homeowners policies that provide replacement-cost settlement on the dwelling, the insurer typically pays:
- A dwelling with a replacement cost of $500,000 is insured for $300,000 under a policy with an 80% coinsurance clause. A partial loss of $40,000 occurs (ignore the deductible). How much will the insurer pay?
- Coinsurance penalties under a homeowners policy apply to:
- Under the standard mortgagee clause typically used in California, how much advance written notice must the insurer give the mortgagee before cancelling the policy?
- Under the standard HO-3, if the dwelling has been vacant for more than how many consecutive days immediately before the loss, certain perils (including vandalism) may be excluded or reduced?
- An insured loses one chair from a matching set of six dining chairs. The pair-and-set clause means the insurer will pay:
Last reviewed: · editorial process
PrepPass Editorial Team · Verified against California Personal Lines Insurance License Exam · How we review