Normally there is confusion at the Law Firm’s office when a request comes in to add a certificate for a mortgagee to an attorney malpractice insurance policy. While we do write many firms’ business owners coverage (BOP) and are happy to add the mortgagee to a BOP; we decline when it is specifically for the malpractice insurance.
This is a recent request received for adding a mortgagee:
“Please can you send me a Certificate of Liability insurance for our client. We are working on a renewal loan closing on May 8th. Please add our Mortgagee.”
“We write the Attorney Malpractice Insurance. Normally Mortgagee’s are not added to a professional liability insurance policy. You need to contact the law firm’s insurer/agent for his general liability/property insurance.”
Normally mortgagees are added on to property exposures. By adding a mortgagee to property insurance coverage, if the insured property is destroyed or damaged the lender’s interest in that property is protected. With a mortgagee added to the property policy, any claims check is made out jointly to the insured and the mortgagee. The claims check can then only be cashed with the consent of the mortgagee. This insures that the property is either restored or the loan is paid off and the lender ‘s interests are protected.
So why would this be a problem with professional liability insurance? Professional liability insurance is 3rd party insurance coverage. Professional Liability insurance policies cover malpractice errors made where the client (3rd Party) has suffered monetary damages. The coverage is triggered by the client bringing notice to the insured that an error was made. The insured then puts the insurer on notice that a claim has been made. Normally the professional has some say in the claim settlement.
If there are monetary damages suffered by the 3rd party, the malpractice insurer pays the 3rd party directly making the 3rd party whole.
Why adding a Mortgagee makes no sense:
1. The mortgagee has no insurable interest in the 3rd party’s indemnity claim. Not even sure how you add a mortgage onto a professional practice as it is not real property.
2. Beyond that the mortgagee should not have a say in the settlement of a 3rd party professional liability claim.
3. Think of the fun to have a mortgagee added to an attorney malpractice claims check. What if the mortgagee refused to sign off on the settlement or demanded to retain a part of the indemnity payment for which they have no insurable interest because the professional insured owed the mortgagee money.