A property insurance provision granting special protection for the interest of
a mortgagee (e.g., financial institution that has an interest in the property)
named in the policy, in effect setting up a separate contract between the
insurer and the mortgagee. It establishes that loss to mortgaged property is
payable to the mortgagee named in the policy and promises advance written
notice to the mortgagee of policy cancellation. It also grants continuing
coverage for the benefit of the mortgagee in the event that the policy is
voided by some act of the insured (e.g., arson). In this situation, the clause
specifies the obligations of the mortgagee in continuing coverage. The
mortgagee would be expected to notify the insurer of any changes in ownership,
occupancy, or exposure; pay any due premium; and submit a signed, sworn
statement of loss within the appropriate time frame. Without the protection of
the mortgagee clause, financial institutions would be unlikely to loan the
large amounts of money necessary to purchase homes, office buildings, or
factories.