When a lender makes a loan secured by personal property, it will perfect its interest in the collateral under applicable law. To further protect the value of the collateral supporting its loan, the lender will also require proof of insurance and obtain an endorsement on the borrower’s insurance policy. Whether the lender obtains an endorsement as a “loss payee” as compared to a “lender’s loss payee” can make all the difference if the insured borrower’s policy is for some reason deemed to be invalid or voided. Because the borrower purchases the insurance and becomes the named insured, secured lenders and lenders’ counsel should ensure the lender is adequately covered under the policy.

There is a very important distinction between “loss payee” and “lender loss payee” endorsements. Despite the similarity of the two terms, the distinction between the practical effect of each makes a critical difference in determining whether a secured party can recover insurance proceeds under the borrower’s insurance policy after a loss to machinery, equipment or other personal property. (It is important to note that the term “loss payee” is not interchangeable with “mortgagee,” but rather pertains to personal property collateral rather than real property).