Loss Payee vs. Lender’s Loss Payable Endorsement – There’s a Difference!

Loss Payee vs. Lender’s Loss Payable Endorsement – There’s a Difference!

While the terms “Loss Payee” and “Lender’s Loss Payable” sound similar, there is a world of difference between the protections afforded the lender as it relates to a lender’s ability to recover on an insurance loss to machinery, equipment or other personal property where the policy carries a “Lender’s Loss Payable” endorsement.

Loss Payee

At the outset, and to avoid confusion, the term “Loss Payee” is not used as being interchangeable with “Mortgagee” but rather pertains to insured risks to personal property (e.g. machinery and equipment) rather than real property. Some may be surprised to learn that being designated as “Loss Payee” on an Evidence of Property Insurance form confers no rights on the lender unless the insurance policy has been properly endorsed or the lender has been properly listed.

The Evidence of Property Insurance form does not guarantee such endorsement or listing. Rather, the lender is only protected as a Loss Payee if the insurance agent has properly and timely requested such an endorsement of or listing on the policy by the insurance company and the insurance company has properly and timely endorsed the policy. Obtaining a copy of the policy or the declarations page is the only way to ensure that the lender’s interest as a Loss Payee has been established.

AND, even if the lender is properly named as Loss Payee, what benefit is afforded? Only this – that IF a covered loss is sustained and IF the insured is entitled to payment, then that payment will be made jointly to the insured and the lender. However, if the insurance company is not obligated to pay the insured because of non-compliance with policy provisions or the wrongful acts of the insured, then the lender gets nothing, notwithstanding its designation as Loss Payee.

Lender’s Loss Payable

Lender’s Loss Payable – sounds similar but oh so different! Like “Loss Payee” being designated “Lender’s Loss Payable” also requires a policy endorsement, which requires diligence by the insurance agent and by the insurance company as noted above. However, once properly endorsed as “Lender’s Loss Payable,” the relationship between the lender and the insurance company is substantially different – and substantially better for the lender.

First, the lender has the right to receive the loss payment, even if the insured has failed to comply with certain terms of the policy or because the loss was occasioned by the insured’s wrongful acts. Not so if merely designated “Loss Payee.” Second, the insurer agrees to provide not less than 10 days prior notice of cancellation to the lender in the event of cancellation for nonpayment and 30 days prior notice if the policy is cancelled for any other reason. Third, the lender will have the right to receive a loss payment even if the lender has commenced foreclosure proceedings against the insured. Fourth, in the event the insurance carrier determines not to renew the policy, written notice will be given to the lender at least 10 days prior to the expiration date of the policy.

In summary, while the terms sound similar, the benefits to the lender when endorsed as “Lender’s Loss Payable” far exceed those available to the lender merely designated as “Loss Payee.”

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