Force-Placed Policies: Who Is Entitled To Benefits?

Article originally published in Insurance Law360 on October 12, 2011.

Force-placed insurance policies — also referred to as “lender-placed” or “force place” policies — have been the subject of debate centered on the question of who is entitled to receive policy benefits when there is a property loss covered by the terms of the policy: the lender, the property owner, or both. This article provides an overview of force-placed coverage in the real property insurance context and the exceptional circumstances in which such coverage is extended to cover the property owner’s interests in addition to the lender’s interests.

The Typical Force-Placed Policy Dispute

Mortgage contracts generally require property owners to maintain insurance on the property for the duration of the mortgage. In the event the property owner’s insurance policy lapses, the mortgage agreement allows the lender to purchase an insurance policy to cover the property, known as force-placed coverage. The property owner is typically not listed as a named insured under the policy despite the occasional provision in mortgage contracts that allows lenders to add the cost of the premiums paid on the force-placed policy to the property owner’s mortgage payments.