What is a Loss Payable Clause?
Insurance is frequently a minefield of confusion and uncertainty, saddling people with contracts that they may not fully comprehend at no fault of their own. One of these mind-boggling attributes is the loss payable clause. To learn more about loss payable clauses and what they mean for you and your family, reach out to a San Diego insurance attorney from Dawson & Rosenthal today.
Loss Payable Clauses Explained
A loss payable clause, sometimes referred to as a loss payee clause, is a part of a contract that pays insurance out to a third party rather than the beneficiary party listed on the insurance plan. This third party is referred to as the “loss payee” in this circumstance and is given this status as there is an assignment of interest on whatever is being insured.
This type of clause is most often included in a policy in which the insured property is subject to a security interest, such as a mortgage. One of the most common areas of insurance that includes loss payable clauses is maritime insurance, although it is commonly found in personal and commercial automobile contracts.
Why Loss Payee Clauses Are Included in Insurance Contracts
The function of a loss payable clause is to protect the lending party. This is due to the risk taken by the lender in the case that their property is damaged or lost during its use as the loss payee has vested interest in the property. In most cases, the mortgagee (usually the bank) requires such a clause to be amended to the end of a contract. The loss payee is normally the owner of the property and is also known as the “lien holder” due to the existence of a lien on the property.
With the lender’s presence as a loss payee, the arrangement ensures that they will be compensated even in the case of damage or loss of the property. It is a safety mechanism for the lender to diminish unpaid loans.
Insurance Policy Clauses in Context
One such example is that of a loss payable clause on a car insurance contract. In the case of an accident with another car, both the owner of the car and the loss payee (the lender) may receive insurance checks. The individual harmed in the accident would receive compensation for medical bills, while the loss payee will receive the money needed to repair or replace the damaged property.
Certain clause requirements and special considerations apply to loss payable clauses as well. Time limitations between the occurrence of a loss on the property and claim filing, the requirement to file a claim, cancellation of a policy, exceptions to the loss of a payee’s unprotected concern, and more are important to keep in mind when becoming a party in a contract with a loss payee clause.
Dawson & Rosenthal, Working for the San Diego Community
The implications of such a clause on someone’s policy can be confusing and oftentimes requires the help of an educated and experienced lawyer. Reach out to a San Diego bad faith insurance attorney today from Dawson & Rosenthal, P.C. by calling (619) 354-1652 to learn more.