Property Insurance FundamentalsQuestion 189 of 215
How does an OPEN (simple) mortgage clause differ from a STANDARD (union) mortgage clause?
a.There is no practical difference; the two clauses are identical
b.Under an open clause the mortgagee's rights rise or fall with the borrower's rights, so the lender loses coverage if the borrower's act voids the policy
c.Under an open clause the mortgagee is automatically named first on every claim payment
d.An open clause requires the insurer to pay the mortgagee directly without notifying the borrower
Explanation
An open or simple mortgage clause makes the lender a mere loss payee. The lender's right to recover depends entirely on the borrower's right, so any act or neglect that voids the borrower's claim also voids the lender's. The standard or union clause creates an independent contract that protects the lender even when the borrower's claim fails.
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