“An appellate court in Tennessee recently held that a mortgagee could not recover the proceeds of a hazard insurance policy because it failed to notify the hazard insurer that it had initiated foreclosure proceedings as to the property,” according to Ralph T. Wutscher, Esq., of Roberts Wutscher.
Wutscher summarized the case as follows:
“The policy contained a standard mortgage clause requiring the insurance company to protect the mortgagee’s interest and, in turn, requiring the mortgagee to notify the insurance company of any ‘increases in hazard.’
The mortgagee sent a letter to the homeowner stating that it had begun foreclosure proceedings, but it did not notify the hazard insurance company of these proceedings. Before the foreclosure process was complete, the homeowner and her husband filed for bankruptcy, which stayed the foreclosure proceedings. Soon after that, the house was destroyed by a fire.
The mortgagee notified the insurance company of the loss. The insurance company refused to pay, asserting that the foreclosure proceedings constituted an increase in hazard of which the mortgagee was required to notify the insurance company, and that the mortgagee’s failure to provide such notice constituted a breach of the mortgage clause in the fire insurance policy.
The appellate court reversed the trial court's ruling in favor of the mortgagee. The appellate court found that the commencement of foreclosure proceedings constituted an ‘increase in hazard’ under the standard mortgage clause in the insurance policy and an ‘increase of hazard’ under T.C.A. § 56-7-804. Accordingly, because the mortgagee did not provide the insurer with timely notice of the foreclosure proceedings, the mortgagee could not recover under the policy.”
Click here to read UTA Counsel Phil Adleson’s review of the case
Click here to read a copy of the opinion