ST. PAUL, Minn. (3/9/15)--The Minnesota Credit Union Network (MnCUN) recently filed an amicus curiae brief with the Minnesota Supreme Court supporting the standard mortgage clause that creates a separate contract for insurance between the mortgagee and the insurer.
The brief was filed jointly with the Minnesota Bankers Association regarding Commerce Bank vs. West Bend Mutual Insurance Co. and urges the court to support the Court of Appeals' decision in favor of Commerce Bank.
MnCUN supports Commerce Bank's position that the standard mortgage clause creates a separate contract for insurance between the mortgagee and the insurer. As long as the policy premiums are paid and the mortgagee itself commits no violations, the policy continues coverage.
If a mortgagor's acts or neglect trigger an exclusion in the underlying owner's policy of insurance, it could invalidate the entire policy, cutting off all rights of a mortgagee-loss payee.
"The standard mortgage clause is the most efficient way to ensure lenders' interests are protected, and the most efficient method of ensuring the borrower is not paying for two policies on the same property," the brief noted. "The invalidation of the standard mortgage clause would result in higher interest rates, decreased lending and possibly an overall economic downturn."
Commerce Bank loaned money to the owner of a commercial property secured by a mortgage against that property. The building became vacant when loan became delinquent, and vandalism caused property damage.
Based upon a standard clause within the property's insurance policy, Commerce Bank, as mortgagee and loss payee, filed an insurance claim with West Bend. West Bend denied Commerce Bank's claim on the basis that the loss was excluded from the owner's policy coverage due to a vacancy exclusion. Commerce Bank then sued West Bend in District Court.