P&CTexasmedium
A lender forecloses on a home after the borrower defaults. The homeowner's policy had a standard mortgagee clause. Which statement correctly describes the mortgagee's rights under that clause?
AForeclosure automatically cancels the mortgagee's coverage because insurable interest transfers to the lender
BThe mortgagee must file a separate claim under its own policy after foreclosure
CThe mortgagee loses coverage once the insured vacates the property for more than 30 days
The mortgagee's coverage continues even if the insured's coverage is voided by a breach of policy conditions
Why this is the answer
A standard (union) mortgagee clause — found in virtually all homeowners policies — gives the lender a separate and independent insurable interest. If the insured's coverage is voided (e.g., fraud, vacancy violation, or foreclosure changing the ownership situation), the mortgagee's coverage survives, provided the mortgagee pays any premium due and cooperates with the insurer. The insurer must notify the mortgagee at least 10 days before a cancellation or nonrenewal takes effect. A simple loss-payable clause, by contrast, gives the lender only the same rights as the insured — a weaker protection.
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