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A Video Explaining the Union or Standard Mortgage Clause  

https://zalma.com/blog

Since properties are frequently encumbered by mortgages, most first  party property policies contain provisions that protect the mortgagee\\u2019s  interest in the event the insured property is damaged or destroyed.  Historically there have been two types of mortgage clauses:  a loss payable or open mortgage clause, which only provides that loss  shall be payable to the mortgagee as interest may appear. Most courts  have construed the phrase, \\u201cas interest may appear\\u201d as referring not to  the mortgagee\\u2019s interest in the insured property, but rather to the  amount of debt owed to it secured by the mortgage or deed of trust. the standard or union mortgage clause (Form 438 BFU NS), which states,  in addition to the loss payable provision, that the mortgagee\\u2019s interest  in the proceeds of the policy shall not be invalidated by any act or  neglect of the mortgagor.  Where an insurer issues a policy knowing that the property is subject to  a mortgage, and in fact the policy itself contains a standard mortgage  clause extending coverage to mortgage holders, there is no added risk.  

At the time the policy was issued, it was foreseeable that a mortgagee  could take possession and control of the property in the event of  default.  The union mortgage clause in an insurance policy creates a separate  contract between the mortgagee and the insurer. [Vargas v. Nautilus Ins.  Co., 248 Kan. 881, 887, 811 P.2d 868 (1991); see also Neises v. Solomon  State Bank, 236 Kan. 767, 778, 696 P.2d 372 (1985); Iron Horse Auto v.  Lititz Mut. Ins. Co., 156 P.3d 1221, 283 Kan. 834 (Kan. 2007)  A standard mortgage clause creates an independent contract between the  insurer and the mortgagee that prevents the mortgagee\'s interest from  being invalidated by the conduct of the mortgagor. [Allen, 167 Minn. at  149\\u201350, 208 N.W. at 817\\u201318 (quoting Syndicate Ins. Co. v. Bohn, 65 F.  165, 178 (8th Cir.1894)); Magoun v. Fireman\'s Fund Ins. Co., 86 Minn.  486, 490, 91 N.W. 5, 7 (Minn. 1902).]  ZALMA OPINION  Every first party property adjuster must understand the effect a  standard mortgage clause has on claims handling and that, even if it is  proved that the insured intentionally committed the crime of  arson-for-profit and burned down his house the mortgagee may still  recover from the insurer up to its security interest.  

\\xa9 2021 \\u2013 Barry Zalma 

 Barry Zalma, Esq., CFE, now limits his practice to service as an  insurance consultant specializing in insurance coverage, insurance  claims handling, insurance bad faith and insurance fraud almost equally  for insurers and policyholders.  He also serves as an arbitrator or mediator for insurance related  disputes. He practiced law in California for more than 44 years as an  insurance coverage and claims handling lawyer and more than 54 years in  the insurance business.  Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.  He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma  is the first recipient of the first annual Claims Magazine/ACE Legend  Award. Over the last 53 years Barry Zalma has dedicated his life to  insurance, insurance claims and the need to defeat insurance fraud. He  has created the following library of books and other materials to make  it possible for insurers and their claims staff to become insurance  claims professionals.