Where there are several mortgagees on the same property, and each is protected by a separate policy containing a mortgagee clause, it becomes desirable to state the rights of each mortgagee, on the assumption that any loss payment to the mortgagee will reduce the mortgage accordingly. This is desirable in the interest of enabling the companies to avoid payments in excess of the loss actually incurred. Two methods have been suggested, namely, (1) make the loss payable to first

mortgagee, and ...

second mort

gagee, as interest may appear"; and (2) make the "loss payable to.... first mortgagee, as

interest may appear, and remainder, if any, to

second mortgagee."

Mortgagee's interest not invalidated by act or neglect of mortgagor.-Should the mortgagee know of the violation of the policy at the time of the endorsement of the mortgagee clause, the probability is that the contract will also be void as to the mortgagee. Such is not the case, however, if the mortgagee acquires knowledge of the violation of the policy subsequent to the endorsement of the clause, except as regards "change of ownership or occupancy or increase of hazard." But the question may be asked: Does a mortgagee clause, attached to an invalid policy, not known to be such by the mortgagee, revive said policy back into life? Here there is a conflict of opinion. In certain states the mortgagee is regarded as protected from the consequences of the acts of the mortgagor, whether committed prior or subsequent to the endorsement of the clause on the policy. In other states, however, a less favorable view prevails, and the mortgagee is held to be protected only against the acts of the mortgagor following the endorsement.

Mortgagee liable for the premium.-Reference need merely be made to the two sections of the clause relat

ing to this matter. One provides that "in case the mortgagor or owner shall neglect to pay any premium due under this policy, the mortgagee (or trustee) shall, on demand, pay the same." The other section provides that "if change of ownership or occupancy or increase of hazard shall come to the knowledge of said mortgagee (or trustee) and, unless permitted by this policy, it shall be noted thereon and the mortgagee (or trustee), shall, on demand, pay the premium for such increased hazard for the term of the use thereof."

Cancellation of the mortgagee's protection.-The company reserves the right "to cancel this policy at any time as provided by its terms, but in such case this policy shall continue in force for the benefit only of the mortgagee (or trustee) for 10 days after notice to the mortgagee (or trustee) of such cancellation, and shall then cease, and this company shall have the right on like notice, to cancel this agreement." It should be noted that the interest of the mortgagee may be terminated in two ways, namely, (1) by cancellation of the policy, or (2) by cancellation of the mortgagee clause. In either case the mortgagee is entitled to 10 days' notice as contrasted with the 5 days' notice extended to the mortgagor under the terms of the policy.

Subrogation when mortgagor violates policy.-Should the company pay a loss to the mortgagee and at the same time claim that no liability exists to the mortgagor, the company reserves the right, under the mortgagee clause, to be legally subrogated, to the extent of the payment made, "to all the rights of the party to whom such payment shall be made, under all securities held as collateral to the mortgage debt, or may, at its option, pay to the mortgagee (or trustee) the whole principal due or to grow due on the mortgage with interest, and shall thereupon receive a full assignment and transfer of the mortgage and of all such

other securities." But the clause expressly provides that in no case shall the subrogation "impair the right of the mortgagee (or trustee) to recover the full amount of

.. claim."

Special or Blanket Agreements. Many special arrangements are effected between insurance companies and mortgagees. But special attention should be called to a type of blanket agreement whereby the insurance company undertakes to protect the mortgagee, usually large lending institutions like life insurance and trust companies, against all adverse legal contingencies. In certain localities, as already observed, some doubt exists as to the legal effect of a mortgagee clause when attached to a policy already null and void because of violation by the mortgagor. The aforementioned blanket agreement is designed to overcome this as well as any other legal doubts. In brief, the company agrees by such special arrangements to protect the mortgagee's interest by waiving its rights to contest the validity of the policy.

Contribution Under the Mortgagee Clause.-As will be explained more fully in a later chapter, the standard policy provides that in case several policies have been written on the same property, each company will only pay that part of any loss which is represented by the proportion that its policy bears to the total insurance granted under all the policies. It may happen that where a number of policies have been written in the name of the owner of the property, he may subsequently make one or more of these policies payable to a mortgagee under the usual mortgagee clause, promising to protect the mortgagee's interest, regardless of any acts or neglect of the owner. Under such circumstances the question arises as to how a loss shall be apportioned among the several policies covering the property.

This subject was carefully discussed by the New York

Court (73 N. Y., 141). Here the owner of the insured building had secured two policies in different companies, one for $4,000 in the Lycoming Company, and the other for $10,000 in the Westchester Company. The mortgagee held a mortgage on the premises for $14,000, and with the consent of the Company had his interest protected under a mortgagee clause indorsed on the policy issued by the Westchester Company and offering protection against the acts or neglect of the owner. Although the policies provided for the apportionment of the loss in case other insurance existed, the mortgagee clause itself did not contain any agreement as to contribution. A loss of $9,000 occurred and the Lycoming Company, in accordance with the terms of its policy, which provided for the payment of any loss in the proportion that its policy bore to all the insurance on the property, promptly settled for $2,571.43, or four-fourteenths of the $9,000 loss, i.e., in the proportion that its policy of $4,000 bore to the total insurance of $14,000. The Westchester Company, whose policy also contained the same apportionment clause, insisted on paying only the balance of the loss, or tenfourteenths. To this, however, the mortgagee objected on the ground that if this were permitted his interest under the mortgagee clause would suffer.

In deciding the case the court expressly declared that the mortgagee clause, when indorsed on the policy, constituted an independent contract between the mortgagee and the Westchester Company. The mortgagee had a right to feel that his interest was protected under this independent agreement, especially since he had no interest in the Lycoming policy. The court therefore ordered payment of the loss to the mortgagee in the same manner as would have been the case if there had been no second policy.

In view of such rulings as the above, it is customary

to-day, if the company wishes to retain the privilege of apportioning its loss among all the policies on a given property, to obviate all legal complications by inserting a "contribution clause" in the mortgagee clause. Thus, in New York and other states two forms of standard mortgagee clauses are used, one being called the "noncontribution mortgagee clause," and the other the "full contribution mortgagee clause." The latter is just like the clause already discussed, except for an additional provision which reads as follows:

"In case of any other insurance upon the within described property this company shall not be liable under this policy for a greater proportion of any loss or damage sustained than the sum hereby insured bears to the whole amount of insurance on said property, issued to or held by any party or parties having an insurable interest therein, whether as owner, mortgagee or otherwise."

Although the wording of this "contribution clause" would seem to be sufficiently definite to preclude a misunderstanding, there have been conflicting decisions as to its effectiveness when the mortgagor, after protecting the mortgagee under a mortgagee clause providing for full contribution, takes out subsequent insurance of which the mortgagee had no knowledge. In the case of Eddy vs. London Assurance Corporation (143 N. Y., 311) the owner of the property had taken out insurance for the protection of the mortgagee. The mortgagee clause protected the mortgagee against the acts of the owner, and contained the contribution clause as quoted above. Subsequently, and for his sole benefit, and without the mortgagee's consent or knowledge, the owner procured other insurance that was not made payable to the mortgagee. Upon a loss occurring, the companies issuing the policies made payable to the mortgagee insisted on the right of