Protection of the mortgagee's interests under property insurances

The mortgagee's interests may be protected in two different ways:

  1. Independent cover of the mortgagee's interests under a so-called Mortgagee Interest Insurance (MII)

  2. Protection of the mortgagee's interests under the owner's insurances
    1. Assignment of the owner's insurances to the mortgagee
    2. Co-insurance of the mortgagee under the owner's insurances, Chapter 7 of the Plan.
      1. Dependent co-insurance, Cl. 7-1
      2. Independent co-insurance, Cl. 8-7
  1. Mortgagee Interest Insurance

    This insurance is taken out by the mortgagee himself, who is then the contracting party or, to keep with the terminology in Cl. 1-1 (b) of the Plan, the “person effecting the insurance”.  Financial institutions, such as banks, will often prefer to take out such insurance to cover the whole portfolio of vessels wholly or partly financed by the bank in order to facilitate the administration of the portfolio.

    Mortgagee Interest Insurance is not covered under the Plan. It is covered on separate terms, most often on English conditions with some amendments or additions. The independent Mortgagee Interest Insurance covered on English conditions does not offer any protection for the mortgagee's interests in the vessel's earning capacity, only protection of the mortgagee's interests if the vessel is damaged or lost.

  2. Protection under the owner's insurances

    The loan agreements invariably require the owner to secure protection for the mortgagee under the owner’s insurances. The mortgagee must see to it that he is protected in each individual case, which is part of the standard procedure followed by lenders in the so called «closing procedure» complied with before any funds are made available under a loan agreement. However, the mortgagee must also follow up on each renewal of the insurances and safeguard that the renewed insurances protect his interests as mortgagee. The loan agreements usually do not require the owner to renew with the same insurer throughout the term of the loan, hence the need for the mortgagee to follow up on the renewals. To the extent the owner enters into long-term contracts with the insurer, the mortgagee's interests may, of course, be correspondingly protected for the same period.