The Law Firm’s office gives our insurance agency name and e-mail so that the lender can contact us to add a certificate for a mortgagee to an attorney malpractice insurance policy. While we are more than happy to do this for a law firm’s business owner’s policy (BOP), we decline when it is specifically for the malpractice insurance.
This is a recent request received for adding a mortgagee from the lender:
“Please can you send me a Certificate of Liability insurance for our client (law firm). We are working on a renewal loan closing shortly. Please add us as a Mortgagee.”
Our response:
“We write the Attorney Malpractice Insurance. Normally Mortgagees are not added to a professional liability insurance policy. You need to contact the law firm’s insurer/agent for his general liability/property insurance.”
Once a mortgagee is added to a property insurance policy, if the insured property is destroyed or damaged the lender’s interest in that property is protected. With a mortgagee added to the property policy, any claims check is made out jointly to the insured and the mortgagee. The claims check can then only be cashed with the consent of the mortgagee. This ensures that the property is either restored or the loan is paid off and the lender’s interests are protected.
So why would this be a problem with Professional Liability insurance? Professional Liability insurance is 3rd party insurance coverage. Professional Liability insurance policies cover malpractice errors made where the law firm’s client (3rd Party) has suffered monetary damages. The coverage is triggered by the law firm’s client bringing notice to the law firm that an error was made. The law firm then puts their malpractice insurer on notice that a claim has been made.
If there are proven monetary damages suffered by the 3rd party, the malpractice insurer pays the 3rd party directly making the 3rd party whole.
Why adding a Mortgagee to a Professional Liability policy is a problem:
1. The mortgagee has no insurable interest in the 3rd party’s indemnity claim.
2. A professional practice is not real property.
3. The mortgagee should not have a say in the settlement of a 3rd party professional liability claim.
4. Adding a mortgagee to an attorney malpractice claims check made out to a 3rd party causes problems. What if the mortgagee refused to sign off on the settlement or demanded to retain a part of the indemnity payment for which they have no insurable interest because the professional insured owed the mortgagee money?
Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080