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.

  1. Co-insurance of the mortgagee

    Co-insurance can either be independent of or dependent on the owner's cover. In the latter case, the mortgagee has no claim against the insurer if the owner has forfeited his right to cover.

  2. Assignment of insurance

    Under English insurance practice, it is unusual to co-insure the mortgagee under the owner's insurances.  However, much the same effect is obtained by an assignment of the insurances.  Based on the general rules of assignment of claims, cp. § S. 25 of the Norwegian Promissory Note Act , the mortgagee will not get any better rights towards the insurer than he had towards the owner.  In other words, the mortgagee stands in the shoes of the owner exactly as if he had been co-insured pursuant to Chapter 7 of the Plan. Assignment of insurances also takes place in Norway, even though the mortgagee is co-insured based on the Plan.

    For the assignment to be valid and protected, if the owner should become insolvent and/or placed under bankruptcy proceedings or the like, the insurer must be notified in writing.[26] A notice of assignment is a condition for the assignment to be valid.

    Otherwise, the assignment will also provide that the owner and insurer are deprived of their respective right to agree amendments of the insurance terms, and early termination of the insurance must be notified to the assignee (the mortgagee).

    It is noteworthy that under English insurance law and practice, the insurer is normally not entitled to terminate the insurance due to the non-payment of premium. This may be explained in part by the fact that the broker is liable for the payment of premium, which is not the case under Norwegian law.[27]

    [26] Law of property Act S. 136

    [27] Discussions are ongoing whether to amend English law on this point.

  3. Loss payable clauses