When is a mortgagee duty-bound to notify an insurer?

Coverage Q&A: An insurance carrier is arguing that the mortgage lender didn’t notify them when the insured moved.

When is a mortgagee responsible to notify a carrier when a property changes ownership?   (Photo: Shutterstock)

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Question: The insurance carrier is arguing that the mortgagee (lender) didn’t notify them when the homeowner moved.

We don’t believe that the mortgagee is obligated to notify the insurance carrier when the insured moves out of the insured’s property. The policy language does not support this is a responsibility of the mortgagee. The homeowner bears the weight of responsibility of advising the carrier if the home is owner-occupied or other-occupied to maintain their end of the policy requirements. 

The policy language within the mortgagee clause reflects the mortgagee is only responsible for advising the carrier if the property becomes vacant, not if the homeowner specifically is no longer living there, at which point there is a change in the risk to the property, and the lender should then notify the carrier.

— California Subscriber

Answer: The key clause here is “…change ownership, occupancy or substantial change in risk of which the mortgagee is aware…” emphasis added. If the mortgagee isn’t aware of when the homeowner moves out, it can’t advise the carrier. The mortgagee’s duty extends only to their knowledge of the situation; if the homeowner moves out in the middle of the night and the mortgagee isn’t aware of it until the homeowner has missed three or four mortgage payments, the mortgagee can’t be held responsible for not notifying the carrier about something it didn’t know. You are indeed correct.

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