Insurance certificates often provide that a debtor\u2019s secured lenders are an \u201cadditional insured\u201d and\/or a \u201closs payee\u201d on the debtor\u2019s insurance policies without the statement that the lender is a \u201cmortgagee\u201d with a \u201cstandard mortgage clause.\u201d These key words need to be included in order to protect the lender from loss or damage suffered to the debtor\u2019s collateral securing their loan regardless of the debtor\u2019s actions or inactions.<\/p>\n\n\n\n
The Alberta Court of Appeal has recently re-highlighted the importance of the lender being expressly named as a mortgagee on the insurance policy to be afforded the protections of the standard mortgage clause. Having the lender named on the insured\u2019s policy of insurance has been common practice for decades with the Supreme Court of Canada in Caisse Populaire Des Deux Rives v. Soci\u00e9t\u00e9 Mutuelle d\u2019Assurance Contre L\u2019Incendie de la Vall\u00e9\u00e9 du Richelieu<\/em>, [1990] 2 S.C.R. 995 ruling that doing so creates a distinct standalone contract between the insurer and the lender\/mortgagee, in addition to the direct contract already existing between the insured and insurer under the policy. The addition of the standard mortgage clause ensures the separate contract between the insurer and the lender\/mortgagee remains valid regardless of whether the insured causes, takes, or makes any action, omission or misrepresentation that could void the insurance policy between the insurer and insured.<\/p>\n\n\n\n In the recent decision of Builders Capital (2014) Ltd <\/em>v<\/em> Aviva Insurance Company of Canada<\/em>, 2022 ABCA 120, the appellant lenders loaned funds to two debtors\/insureds to construct a residential property. Though the debtors\/insureds had later been issued a homeowner\u2019s insurance policy by the respondent insurer, the policy, which covered for property damage and was subject to a standard mortgage clause, did not name the appellant lenders as additional insured, loss payee or mortgagee (rather the Royal Bank of Canada was listed as a mortgagee). Though inaccurate, the respondent insurer had been provided with this information from the insured before the policy was issued, and when an inquiry was later made to add one of the appellant lenders to the policy as second mortgagee, the respondent insurer was not agreeable to such addition since it did not underwrite insurance policies with that specific mortgage company.<\/p>\n\n\n\n After a fire caused damage to the insured real property, the respondent insurer deemed the policy of no force and effect due to the misrepresentations in the insured\u2019s insurance application; the appellant lenders claimed the standard mortgage clause in the policy afforded them protection. At trial and subsequently upheld by the appellate court, it was ruled that the standard mortgage clause and therefore the coverage under the policy did not extend to the appellant lenders, notwithstanding their argument that they were \u2018actual\u2019 mortgagees. To rely on the protections extended by the standard mortgage clause, basic contract principles still applied in that the insurer must still agree to the separate contract between the insurer and lender\/mortgagee. It was not enough that the lender\/mortgagee reasonably expected to be protected, as the court made a factual determination that the respondent insurer in this case did not represent or intend to afford coverage to the appellant lenders.<\/p>\n\n\n\n As demonstrated by this decision, it is critical for a secured lender to be expressly identified and named as a \u201closs payee\u201d and \u201cmortgagee subject to a standard mortgage clause\u201d on all-risks real property insurance policies to ensure that a lender\u2019s interests are properly protected in these situations. A standard mortgage clause is generally given only in respect of real property. Although we are not aware of a case confirming enforcement of the clause in respect of personal property, a secured lender should also require that the standard mortgage clause expressly applies to personal property and\/or receive a lender\u2019s loss payable endorsement in order to get similar protection in respect of personal property.<\/p>\n\n\n\n If you have any questions, please reach out to a member of Miller Thomson\u2019s Financial Services<\/a> or Restructuring & Insolvency<\/a> groups.<\/p>\n","protected":false},"excerpt":{"rendered":" Insurance certificates often provide that a debtor\u2019s secured lenders are an \u201cadditional insured\u201d and\/or a \u201closs payee\u201d on the debtor\u2019s insurance policies without the statement that the lender is a \u201cmortgagee\u201d with a \u201cstandard mortgage clause.\u201d These key words need to be included in order to protect the lender from loss or damage suffered to […]<\/p>\n","protected":false},"author":100,"featured_media":14357,"parent":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[554],"insight-format":[416],"class_list":["post-6228","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-financial-services"],"acf":[],"yoast_head":"\n