What it does
CP 12 18 adds loss payees to the Loss Payment condition. The Schedule identifies the location, building, property, payee and which clause applies:
- C.1 Loss Payable Clause: the insurer adjusts losses with the insured and pays jointly to the insured and the loss payee as interests may appear.
- C.2 Lender's Loss Payable Clause: for creditors whose interest is established by mortgages, deeds of trust, security agreements, financing statements, warehouse receipts, bills of lading or a contract for deed. The lender is paid in order of precedence even during foreclosure. If the insured's claim is denied for the insured's acts or breach, the lender can still recover if it pays any premium due, files a sworn proof of loss within 60 days of notice, and has reported known changes in risk. The lender also gets notice of cancellation (10 days for nonpayment, 30 days otherwise) and 10 days' notice of nonrenewal.
- C.3 Contract of Sale Clause: protects a buyer or seller under a contract of sale.
- C.4 Building Owner Loss Payable Clause: the payee is the owner of the building the insured rents. Losses to the described building, insured under the tenant's policy, are adjusted with and paid to the owner. Tenant's improvements and betterments are still adjusted with the tenant unless the lease says otherwise.
The endorsement does not increase limits. A loss payee never receives more than its financial interest.
Who needs it
Borrowers whose equipment or inventory secures a loan, equipment lessees, tenants whose leases require the landlord to be loss payee on improvements, and sellers on installment contracts.
Quoting and selling notes
- Lenders usually specify "lender's loss payable" (C.2) on certificates and loan documents. Choose the clause that matches the contract.
- Mortgageholders on buildings are usually handled through the Mortgageholders condition in the Declarations, not CP 12 18.
- To make a building owner an insured for the building itself, use CP 12 19.
