Still Crazy After All These Years: Recent Developments on the Standard Mortgage Clause

A not uncommon scenario: after examining the charred debris of a property fire, investigators note that the building’s alarm failed to sound and automatic sprinkler system similarly failed to activate because neither had been inspected or maintained for over a year. The policy that insured the property conditioned coverage on the protective safeguards’ maintenance and functionality. The insured’s failure to satisfy these conditions bars coverage for the loss. But the insured’s failure to satisfy the conditions does not necessarily foreclose coverage for others. Individuals or entities named under the policy’s “standard” mortgage clause or “Mortgageholders” clause in ISO forms are not subject to coverage defenses applicable to the insured, leaving insurers still potentially liable for the loss. The standard mortgage…