Periodically we receive requests to add a mortgagee to a legal malpractice policy. This occurs when a law firm lender requests a certificate of insurance for a loan that is being renewed or procured. The law firm gives our insurance agency name and e-mail so that the lender can contact us about adding a certificate for a mortgagee to an attorney malpractice insurance policy. While we are more than happy to do this for a business owner’s policy (BOP), we decline when it is specifically for the malpractice insurance.
The typical request received for adding a mortgagee from the lender:
“Please can you send me a Certificate of Insurance for our client (law firm). We are working on a renewal loan closing shortly. Please add us as a Mortgagee.”
Our response:
“We write the attorney malpractice Insurance but do not write the property coverage. The insurer does not permit adding a mortgagee to a professional liability insurance policy. You need to contact the law firm’s insurer/agent for their general liability/property insurance.”
With a mortgagee added to a property insurance policy, if a fire (or another covered Peril) destroys or damages the certificate of insurance protects the lender’s interest. With a mortgagee added to the property policy, claim checks are made out jointly to the insured and the mortgagee. The claims check can then only be cashed with the consent of the mortgagee. This ensures that the property is either restored or the insurance check goes towards paying off the loan.
Professional liability insurance is 3rd party insurance coverage. Professional liability insurance policies cover malpractice errors made where the law firm’s client (3rd Party) has suffered monetary damages. The coverage is triggered by the law firm’s client bringing notice to the law firm that an error was made. The law firm then puts their malpractice insurer on notice that a claim has been made.
If there are proven monetary damages suffered by the 3rd party, the malpractice insurer pays the 3rd party directly making the 3rd party whole.
Why adding a Mortgagee to a Professional Liability policy is a problem:
1. The mortgagee has no insurable interest in the 3rd party’s indemnity claim.
2. A legal malpractice policy does not provide coverage for damaged suffered to the law firm’s building for rebuilding or paying off the mortgage.
3. The law firm needs a BOP policy to properly cover the building, contents, and business interruption exposures.
4. While a property loss could cause malpractice claims, the mortgagee has no insurable interest in those claims.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080