A loss payee clause (or loss payable clause) is a clause in a contract of insurance that provides, in the event of payment being made under the policy in relation to the insured risk, that payment will be made to a third party rather than to the insured beneficiary of the policy.
Such clauses are common where the insured property is subject to a mortgage or other security interest and the mortgagee, usually a bank, requires the property be insured and that such a clause be included. The clauses are found in maritime insurance in relation to insuring mortgaged vessels. When selling land via a land contract, the seller may require the buyer to include a loss payee clause in their insurance policy to protect the seller's ongoing interest in the property until the contract is concluded.[1]
As a matter of practicality, such clauses are usually appended to the end of existing policies in a separate addendum, after being negotiated between the insurer and the mortgagee. A sample clause issued by Lloyd's of London states that
This Loss Payee clause shall in no manner or wise be construed as a separate agreement between Underwriters and the Beneficiary but only as a simple appointment of the beneficiary by the Assured to receive payment as its interest may appear from any funds which Underwriters agree to pay to the Assured in the event of any loss or from any judgement granted to the Assured.[2]
^Kershen, Drew L. (1990). "Contracts for Deed in Oklahoma: Obsolete but not Forgotten". Oklahoma City University Law Review. 15: 720–721, 735.
^Beazley.com, Lloyd's of London: International Trade Credit Insurance - Insolvency & Default Cover, Single Debtor Cover, archived 29 September 2007, accessed 1 August 2022
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