A loss payee clause (or loss payable clause) is a clause in a

contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...

insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...

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 A beneficiary (also, in trust law, '' cestui que use'') in the broadest sense is a natural person or other legal entity who receives money or other benefits from a benefactor. For example, the beneficiary of a life insurance policy is the person ...

of the

policy Policy is a deliberate system of guidelines to guide decisions and achieve rational outcomes. A policy is a statement of intent and is implemented as a procedure or protocol. Policies are generally adopted by a governance body within an organ ...

. Such clauses are common where the insured property is subject to a

mortgage A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any pu ...

or other

security interest In finance, a security interest is a legal right granted by a debtor to a creditor over the debtor's property (usually referred to as the ''collateral'') which enables the creditor to have recourse to the property if the debtor defaults in makin ...

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. A sample clause issued by

Lloyd's of London Lloyd's of London, generally known simply as Lloyd's, is an insurance and reinsurance market located in London, England. Unlike most of its competitors in the industry, it is not an insurance company; rather, Lloyd's is a corporate body gov ...

states that

Sample clause

:It is noted that, by an assignment in writing collateral to a first priority statutory ship mortgage (the "Mortgage"), he shipowner(the "Owner") assigned absolutely to

he bank He or HE may refer to: Language * He (pronoun), an English pronoun * He (kana), the romanization of the Japanese kana へ * He (letter), the fifth letter of many Semitic alphabets * He (Cyrillic), a letter of the Cyrillic script called ''He'' in ...

(the "Assignee") the benefit of this policy of insurance and all benefits of this policy, including all claims of any nature (including return of premiums) under this policy. Claims payable under this policy in respect of a total or constructive total or an arranged or agreed or compromised total loss or unrepaired damage and all claims which (in the reasonable opinion of the Assignee) are analogous thereto shall be payable to the Assignee up to the Assignee's mortgage interest. Subject thereto, all other claims, unless and until underwriters have received notice from the Assignee of a default under the Mortgage, in which event all claims under this policy shall be payable directly to the Assignee up to the amount of the Assignee's mortgage interest, shall be payable as follows: :# a claim in respect of any one casualty where the aggregate claim against all insurers does not exceed $500,000 or the equivalent in any other currency, prior to adjustment for any franchise or deductible under the terms of the policy, shall be paid directly to the Owner for the repair, salvage or other charges involved or as a reimbursement if the Owner has fully repaired the damage and paid all of the salvage or other charges; :# a claim in respect of any one casualty where the aggregate claim against all insurers exceeds $500,000 or the equivalent in any other currency prior to adjustment for any franchise or deductible under the terms of the policy, shall, subject to the prior written consent of the Assignee, be paid to the Owner as and when he vessel(the "Vessel") is restored to her former state and condition and the liability in respect of which the insurance loss is payable is discharged, and provided that he insurers(the "Insurers") may with such consent make payment on account of repairs in the course of being effected, but, in the absence of any such prior written consent shall be payable directly to the Assignee up to the Assignee's mortgage interest. Notwithstanding the terms of this loss payable clause and notwithstanding notice of assignment, unless and until brokers receive notice from the Assignee to the contrary, brokers shall be empowered to arrange their proportion of any collision and/or salvage guarantee to be given in the event of bail being required in order to prevent the arrest of the Vessel or to secure the release of the Vessel from

arrest An arrest is the act of apprehending and taking a person into custody (legal protection or control), usually because the person has been suspected of or observed committing a crime. After being taken into custody, the person can be questi ...

following a casualty.

References

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External links

Lloyd's of London standard form loss payee clause
Contract clauses Marine insurance Mortgage insurance