United States: The Name Game: How A Lender Is Designated - A Borrower's Policy Affects Its Rights If There Is A Loss (Part One)

Last Updated: September 25 2015
Article by Thomas B. Alleman

Loan docs generally require Borrower to provide insurance on collateral in favor of Lender. Borrower presents Lender with a policy declaration page listing Lender as a "loss payee;" this is known as an open mortgage, loss payee or loss payable clause. Lender is protected if there is a covered loss, correct? To answer that question, we must first answer this one: what rights does a "loss payee" have under such a clause? 

Virtually all commercial property policies contain "Loss Payable Provisions," sometimes on an endorsement (ISO form CP 12 18 is an example), and sometimes in the main text of the insuring agreement. A typical loss payee/open mortgage clause reads as follows:

For Covered Property in which both you and a Loss Payee shown in the Schedule or in the Declarations have an insurable interest, we will:

  1. Adjust losses with you; and
  2. Pay any claim for loss or damage jointly to you and the Loss Payee, as interests may appear.

This looks innocuous and comforting enough, but it needs unpacking.

First, consider "shown in the schedule or in the declarations." To have protection as a loss payee (or a lender loss payee), the lender's name must be listed in the policy. A lender must ensure that it is named—and correctly named—in the policy as a loss payee if it wants whatever protection being a loss payee provides. If the lender is "First National Bank of Anytown," a listing of "National Bank of Anytown" may be insufficient.

Second, "shown in the Schedule or in the Declarations" means what it says. If the loan is sold, the purchasing lender has no rights as a loss payee, unless it is named in the schedule or declarations. The same is true of servicers, because a servicer may have to be able to demonstrate that it is the lender's representative with rights to act on behalf of the lender to recover. (Check out the Florida residential mortgage foreclosure cases if you have doubts. E.g., BAC Funding Consortium Inc. ISAOA/ATIMA v. Jean–Jacques, 28 So.3d 936 (Fla. 2d DCA 2010).)

There is a possible workaround: if First National Bank of Anytown is to be the loss payee, the designation "First National Bank of Anytown ISAOA" can be use (although the author strongly prefers substitution of specific names at each transfer). The acronym "ISAOA" stands for "its successors and/or assigns," and its insertion in a designation may be sufficient to allow a successor lender or servicer to claim loss payee status. (But the successor may have to prove its status, which may entail court proceedings and considerable delay. This is what Jean-Jacques is about, and why the author strongly prefers specific changes at every transfer.)

Next, consider the phrase "pay any claim for loss or damage jointly to you and the Loss Payee." Under this provision, who negotiates a settlement if there is a loss? You are correct if you said the named insured/borrower, which means that the lender can be entirely excluded from the claim adjustment process. If the insurer interposes a thin or invalid defense to coverage that the borrower does not address or the borrower does not provide adequate support for a claim or just takes a low-ball offer, the lender can find that its collateral is damaged or destroyed and there has not been an adequate recovery.  

Westfield Ins. Co. v. Talmer Bancorp, 545 Fed. Appx. 402 (6th Cir. 2013), gives an example of what can happen if the lender is not at the table. In Talmer, the insured had a vandalism loss to a building and inventory, both of which were secured in favor of Talmer. The borrower fraudulently told Westfield, its insurer, that there were no liens on the property. Smelling the proverbial rat, Westfield investigated. It found the bank's security interest on the building but not on the inventory. It issued a check to the borrower only on the inventory claim. The bank then sued. Held: the borrower's fraud barred recovery by the lender. The Sixth Circuit affirmed, thereby highlighting the fundamental problem with an open mortgage/loss payee clause: if the borrower/insured commits fraud or allows the policy to lapse, the loss payee has virtually no independent rights.

ViewPoint Bank v. Allied Prop. & Cas. Ins. Co., 439 S.W.3d 626 (Tex. App. – Dallas 2014, pet. denied), is a little more hopeful. There, the borrower had a covered loss from Hurricane Ike in 2008. The lender was named as a loss payee, and the borrower properly reported that interest. The insurer issued a check payable jointly to borrower and lender. So far, so good, but the borrower negotiated the check without getting the lender's consent or endorsement. The Bank sued, and unlike Talmer, it also made a claim under UCC Article 3 on the check. Held: the Bank could recover on its Article 3 claim. This sounds like a win, but remember that it took about five years and almost $89,000 in fees to collect. Hmmm...

To answer the question posed at the outset, even assuming the lender is properly named in the first place, an open mortgage/loss payable clause gives a lender no independent rights in a property insurance policy. The insured/borrower's fraud or wrongful acts may deprive the insurer of any right of recovery or force it to pursue expensive litigation. But this is not incurable. In our next installment, we discuss an alternative policy clause that provides much greater protection to a lender. Stay tuned.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.