A party named on an insurance policy to receive claim payments for damage to insured property it has a financial interest in, usually a lender or lessor of equipment or other personal property.
The longer version
A loss payee is a person or company named in a property policy to receive some or all of the insurance proceeds when covered property is damaged or destroyed. It is not the policyholder and cannot change the policy or file the claim. It is the party with money at stake in the property, most often a lender that financed equipment, furniture, inventory or vehicles, or a lessor that owns leased equipment.
On a commercial property policy the designation usually comes through a loss payable endorsement. The common ISO form, Loss Payable Provisions (CP 12 18), offers three options: a basic loss payable clause, a lender's loss payable clause, and a contract of sale clause. Under the basic clause, the loss payee's recovery is only as good as the insured's: if the insured's fraud or breach defeats the claim, the payee's claim usually fails too. A lender's loss payable endorsement gives the creditor the same rights and duties a standard mortgage clause gives a mortgagee, so the lender's interest survives the borrower's acts.
Loss payee is a property concept. It is easy to confuse with an additional insured, which extends liability coverage to another party, and with a mortgagee, which protects a lender's interest in real property. A commercial real estate loan secured by a building and its personal property often needs the lender named in two places: as mortgagee for the real property and as lender's loss payee for fixtures, furniture and equipment.
At closing, the lender's insurance review confirms the designation on the evidence of property insurance, typically the ACORD 28, which has separate boxes for mortgagee, loss payee and lender's loss payable. Which designation a loan needs, and on which policies, is set by the loan documents and confirmed by counsel or the insurance consultant.
In Prodeal
Each required designation can be its own checklist line, so the mortgagee clause and the lender's loss payable endorsement are cleared separately, each with an owner, a status and the document that proves it.
Common questions
- What is a loss payee?
- A party named on a property insurance policy to receive claim payments for damage to property it has a financial interest in, typically a lender or lessor of equipment or other personal property.
- What is a lender's loss payable endorsement?
- A commercial property endorsement that gives a creditor with an interest in the insured's personal property the same rights and duties a standard mortgage clause gives a mortgagee, so the lender's interest is not defeated by the borrower's acts.
- What is the difference between a loss payee and a lender's loss payee?
- A basic loss payee recovers only if the insured could. A lender's loss payee is protected even when the insured's conduct, such as fraud or a policy breach, would defeat the insured's own claim.
- Is a loss payee the same as an additional insured?
- No. A loss payee receives property claim payments. An additional insured is extended liability coverage under someone else's policy. Lenders are often named in both roles, on different policies.
- What is a loss payable clause?
- The policy wording that names the loss payee and directs payment of covered property losses to it, usually "as its interest may appear". On commercial property policies it is often added by the ISO Loss Payable Provisions endorsement, CP 12 18.
- Mortgagee clause, definedThe lender's protection on the real property.
- ACORD 28The evidence form where the designation shows.
- What lenders check on a borrower's insuranceRunning the insurance review before closing week.
- The CRE due diligence checklistWhere insurance sits in diligence.
- Document collection softwareCollecting certificates from brokers.