In order for the insurer to respond to a valid claim, the mortgagee must carry out three conditions. The mortgagee must: (1) notify the insurer of any change in ownership, occupancy, or substantial change in risk of which the mortgagee is aware; (2) pay any premium due on demand if the mortgagee has neglected to pay the premium; and (3) submit a signed, sworn statement of loss within 60 days after receiving notice from the insurer that no statement has been received.

The coverage question then turns on whether the claim is valid from the standpoint of the mortgagee. The policy precludes coverage for vandalism if the dwelling has been vacant for more than 30 consecutive days immediately before the loss. Does this exclusion also then apply to the mortgagee's claim? We do not think it does.

Many courts are of the opinion that the mortgagee clause operates as a separate contract with the mortgage holder. See, for example, Travers v. Universal Fire & Casualty Insurance, 34 S.W.3d 156 (Mo. Ct. App. 2000): “Because the union mortgage clause is an independent contract between the mortgagee and the insurance company, the mortgagee is protected against loss from any act or neglect of the mortgagor or owner, so that it shall not defeat the insurance so far as the interest of the mortgagee is concerned.” So, the “act or neglect” on the part of the insured was to leave the premises vacant, but this act should not preclude coverage for the mortgagee.

The mortgagee submitted the appropriate statement of loss, and notified the insurer as soon as it learned the insured had vacated the property. A notice of foreclosure does not necessarily mean the premises are immediately vacated. And, the foreclosure does not constitute a “change in ownership” according to the case cited above; the court in Travers noted that “a mortgagee's purchase of the insureds' property at a foreclosure sale was not a 'change in ownership' within the meaning of a union mortgage clause requiring the mortgagee to notify the insurer of any change in ownership.” How much more valid, then, is the mortgagee's claim in your situation, when the foreclosure sale has not yet taken place. Bottom line, the loss is covered.