This clause has been interpreted by almost all courts that have been asked to construe it to mean that such acts that would ordinarily void the policy, such as committing arson or bringing dynamite on the premises, would merely invalidate the policy as to the mortgagor. They do not affect the coverage available to the mortgagee.
The majority of courts interpret the standard mortgage clause as a separate contract from that which exists between the insurer and the mortgagor. However, the basic Loss Payable Clause only pays the mortgage holder if there is a valid claim but the mortgagee gets nothing if the insured does something to make the policy void, like an attempt at fraud.
The following video was adapted from my book, “Insurance Claims A Comprehensive Guide” Published by the National Underwriter Company and is available at the Zalma Insurance Claims Library.
(c) 2015, Barry Zalma
The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.