Loss payee clause
A loss payee clause is a clause in a contract of insurance that provides, in the event of payment being made under the policy in relation to the insured risk, that payment will be made to a third party rather than to the insured beneficiary of the policy.
Such clauses are common where the insured property is subject to a mortgage or other security interest and the mortgagee, usually a bank, requires the property be insured and that such a clause be included.
Although such clauses are found in other areas of insurance, they are most common in maritime insurance in relation to insuring mortgaged vessels.
As a matter of practicality, such clauses are usually appended to the end of existing policies in a separate addendum after being negotiated between the insurer and the mortgagee.
