A loss payee is a secured lender, creditor, named on an insurance policy, to whom the borrower has delivered clearly defined personal property as a security for the payment of a loan. A creditor may hold the right to specific payment for losses that are provided with a cover by the policy. Even though a loss payee's name figure in the policy documents, it is not an insured.
Loss payee endorsement
By this definition, we understand that the insurance underwriter accepts the instruction to make payment for all claim proceeds. In this option, financier could not put claims or control the policy. On this account, a co-insured endorsement is stronger than loss payee endorsement. If available is only a loss payee endorsement, financing needs to be covered with recourse.
Loss payee as a banker's clause
Banker's clauses are a number of certain conditions that must be met, should be taken into account in insurance policies. The procedure is required by lenders to ensure themselves properly protection. One of the banker's clauses is loss payee.
„The lenders' agent bank or security trustee is named as sole loss payee on policies covering loss or damage (or loss payee for amounts above an agreed figure, with smaller amounts payable to the Project Company). (However, payments fr third-party liability are made directly to the affected party.) This may also give the lenders the right to take action directly against the insurance company in some jurisdictions, but in any case assignment of the insurance policies forms part of the lenders' security package".
Loss payee in different aspects
Below, there is presented description of loss payee in different fields:
- Loss payee in motor vehicles. The interest of a creditor who has pawned the motor vehicle is protected by the loss payable clause concerning extensive coverage and collision. The regulation demands from the insurer to protect the interest of a person who has the right to property in case of devastation or damage caused to the vehicle. The insurer has to give at least 10 days termination if it wants to cancel the contract. Consequently, the lien holder has a chance to obtain property damage coverage to secure completely its interests. The overage for the creditor can not be closed down as a consequence of neglect from both lender or proprietor, which is provided by loss payable clauses.
- Loss payee in law of maritime insurance. There is a big difference between the loss-payee and the assignee when it comes to marine policy. The way Randall Bunnell sees it "A loss-payee is the person, other than the insured, named in the loss-payable clause to whom the payment under the policy is to be made in the case of an insured loss." A loss-payable clause ensures that when we make any payment under the policy, we pay it out to a loss payee, not to the insured. It is a chore of the sole right to require the payment derived from insurance profit, while unchanged is any other obligation or right. For that reason, if there is a loss covered by policy, the conditions of the policy decide about the insurer's obligation. In accordance with the law, it is not necessary to have any insurable interest by the loss-payee, it does not matter what kind of legal relationship it is, he cannot have any allegation for the reason that the policy it is not his interest. The exception is when the loss-payee appears in the policy as an additional insured or is named as a co-insured. In reality, the loss-payee will often refer to economic interest and he can act as a co-insured or an added insured.
- E. A. Wiening (2002), p. 6
- S. A. Jones (2018), p. 433
- E. R. Yescombe (2002), p.131
- E. R. Yescombe (2002), p.131
- R. Bunnell (2018), p. 367
- M. Fitzmaurice, D. J. Attard, I. Arroyo, N. A. Martínez Gutiérrez (2016), p. 611
- Bunnell R., (2018), Utah Auto Law, LexisNexis, New York
- Fitzmaurice M., Attard D. J., Arroyo I., Martínez Gutiérrez N. A., Belja E., (2016), The IMLI Manual on International Maritime Law: Shipping Law, Oxford University Press, Oxford
- Jones S. A., (2018), Trade and Receivables Finance: A Practical Guide to Risk Evaluation and Structuring, Springer, Solihull
- Wiening E. A., (2002), Foundations of Risk Management and Insurance, American Institute for Chartered Property Casualty Underwriters/Insurance Institute of America, USA
- Yescombe E. R., (2002), Principles of Project Finance, Elsevier, USA
Author: Kinga Podlasek