Property Insurance FundamentalsQuestion 241 of 474
A dwelling is destroyed and the insurer denies the owner's claim because he set the fire. Under the standard mortgage clause:
a.The mortgagee may still be paid its interest
b.The mortgagee is paid after the owner is
c.The mortgagee's claim dies with the owner's
d.The mortgagee must first sue the owner in court
Explanation
The standard mortgage clause is a separate agreement between the insurer and the lender, so the lender's right to payment survives acts of the owner, such as arson or misrepresentation, that void the owner's own claim. Treating the two claims as one destroys the security the clause exists to give. The mortgagee need not sue the borrower first and is not paid out of the owner's settlement.
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