Registered Insurance Brokers of Ontario (RIBO) Practice Exam

What is a key consequence of attaching a standard Mortgage Clause to a policy?

1. The insurer can deny claims if conditions are violated

2. The insured must pay the full amount of loss

3. The insurer may pay a loss to the Mortgagee despite the insured violating a policy condition

4. The insured cannot make claims for any damages

The correct answer is: The insurer may pay a loss to the Mortgagee despite the insured violating a policy condition

The correct choice highlights a crucial aspect of how a standard Mortgage Clause functions within an insurance policy. When a standard Mortgage Clause is included, it grants protection to the mortgagee (the lender) in the event of a loss. This means that even if the insured (the property owner) has violated certain conditions of the policy, the insurer is still obligated to pay the mortgagee for the loss, up to the amount needed to satisfy the mortgage. This provision ensures that the lender's financial interest is protected, allowing them to recover the amount owed even if the borrower has failed to meet the terms of the insurance contract. It reflects the principle of insurable interest and the risk management strategy that lenders employ to mitigate potential losses. In contrast, other options present misunderstandings regarding the implications of a Mortgage Clause. For instance, the option about the insurer being able to deny claims if conditions are violated does not fully capture the protective nature of the clause for the mortgagee. Similarly, asserting that the insured must pay the full amount of loss overlooks the fact that the insurance is meant to cover losses, making the insured not liable for the total loss amount directly. Finally, the assertion that the insured cannot make claims for any damages disregards the fact that the insured still