Article (in Estonian): O.-J. Luik, A. Kattel, "Hüpoteegipidaja – privilegeeritud subjekt kahjukindlustuses" (The mortgagee as a privileged party in non-life insurance), Juridica 2009/7, pp. 428–438. Article page on Juridica (published 2009)
Co-author: A. Kattel.
Research question
The mortgagee's rights and duties when a building is insured are governed by §§ 499–504 of the Law of Obligations Act (võlaõigusseadus, VÕS). The article analyses their nature.
Main arguments
The rules significantly extend the insurer's obligations compared with a relationship without a mortgagee. In some cases the insurer must pay the mortgagee even though it has been released from performance towards the policyholder. Although insuring a mortgaged building is not a statutory obligation, banks require it in loan agreements, so the mortgagee's privileges affect a very large share of insurance relationships. The privilege applies only to buildings; there is no equivalent for ship mortgagees, for example. The purpose is to prevent the mortgage from losing its value merely because the building is destroyed.
Relevance for insurers
VÕS §§ 499–504 remain in force. The insurer must notify a known mortgagee of premium arrears, termination and the insured event, and generally cannot rely on the policyholder's breach against the mortgagee; the exceptions are unpaid premium and an intentionally caused insured event. For foreign insurers and lenders, this functions much like a statutory standard mortgagee clause.