When a claim is submitted to an insurer under an insurance policy and the insurer determines that it will make payment for the loss incurred, the insurer must then make payment to the proper party. To determine the proper payee of insurance proceeds, an insurer must focus on the rights under the policy rather than the rights of the parties to the insured property. For example, the fact that a party owns the insured property does not mean that he is entitled to the proceeds when a loss occurs. In general, any party with a recognized interest in the proceeds may be entitled to payment. If a party entitled to payment is not paid, the insurer may be subject to multiple liability for the same loss.
Insured
Generally, the proper payee of the proceeds is the insured. If the payee is to be someone other than the insured, the insurer may require notice of the other person's interest.
Loss payee
A party named as the loss payee may be entitled to the proceeds of the policy, but the fact that the loss payee is named as such does not determine its entitlement to the proceeds. However, if the insurer fails to make payment to a named loss payee according to the policy, the loss payee may file suit against the insurer.
Mortgagee
It is common for an insured's policy to cover property that is mortgaged to a mortgagee. Thus, certain policies contain a mortgage clause in favor of the mortgagee. A "standard," or ''union,'' mortgage clause provides that any loss is payable to the mortgagee as its interest in the proceeds of the policy may appear and that such interest will not be affected by any act of the insured. An "open," or "loss payable," mortgage clause provides only that any loss is payable to the mortgagee as its interest may appear. Thus, a standard mortgage clause affords more protection to the mortgagee to recover the policy proceeds without regard to any neglect or misconduct by the insured.
A mortgagee may also be entitled to the policy proceeds without being named in the policy. If the insurer learns of the existence of an unnamed mortgagee, it should attempt to determine whether the unnamed mortgagee has an equitable lien on the proceeds before deciding to include or not include it as a payee of the proceeds. Such a lien may arise if the insured had promised to procure insurance for the benefit of the mortgagee or to name the mortgagee in the policy.
Assignee
After an insured incurs a loss, he may assign his right to recover proceeds of the policy to an assignee. The most common assignees of policy proceeds include public adjusters, attorneys, fire restoration companies, or other general creditors of the insured. In order for the assignment to be valid, the insurer must either receive notice of it or become aware of it before making payment.
Copyright 2010 LexisNexis, a division of Reed Elsevier Inc.
