Loss Payable Clause

Loss Payee:

Loss or damage under this policy shall be paid, as interest may appear, to you and the loss payee shown in the Declarations or in this endorsement. This insurance with respect to the interest of the loss payee, shall not become invalid because of your fraudulent acts or omissions unless the loss results from your conversion, secretion or embezzlement of “your covered auto.” However, we reserve the right to cancel the policy as permitted by policy terms and the cancellation shall terminate this agreement as to the loss payee's interest. We will give the same advance notice of cancellation to the loss payee as we give to the named insured shown in the Declarations.

When we pay the loss payee we shall, to the extent of payment, be subrogated to the loss payee's rights of recovery.

This endorsement must be attached to the Change Endorsement when issued after the policy is written.

 Analysis

The endorsement of a loss-payable clause on a policy is no more than a designation of to whom the loss shall be paid—that is, the named insured and the loss payee shown in the declarations or in the endorsement; the loss is paid as the interest in the lost or damaged property appears. The endorsement goes on to add that the insurance coverage for the loss payee does not become invalid because of the fraudulent acts or omissions of the named insured. If the named insured makes fraudulent statements or engages in fraudulent conduct in connection with any accident or loss, the policy usually declares that the insurer will not provide coverage. The loss payee endorsement carves out an exception for the loss payee so that its interests will be covered.

However, there are exceptions to this. If the loss to a covered auto results from the conversion, secretion, or embezzlement on the part of the named insured, the coverage for the loss payee also becomes invalid.

The loss payee endorsement allows the insurer to cancel the policy as permitted by the policy terms, and this will terminate the agreement as to the loss payee's interest. The loss payee is to receive the same advance notice of cancellation as the named insured receives.

As with the named insured, if the insurer pays the loss payee, any rights of recovery that the loss payee possesses pass to the insurer.

As a final point, note that in the case of Boyd v. General Motors Acceptance Corp., 413 N.W.2d 683 (Mich.App. 1987), the court found that a loss-payable clause on an automobile policy does not provide greater coverage for a secured party than that provided for the owner of the car. In other words, the loss payee does not receive any more coverage than the named insured; that is, the exclusions and conditions and insuring agreement requirements apply to both the named insured and the loss payee.