# Research article: the mortgagee as a privileged party

URL: https://insurancelawestonia.ee/blog/2009-07-01-research-mortgagee-property-insurance/
Author: Dr Olavi-Jüri Luik, Partner, Head of Insurance Law, attorney at law (Advokaadibüroo WIDEN OÜ)

> Luik and Kattel, Juridica 2009/7: the mortgagee's rights and duties when a building is insured under Estonian law (VÕS §§ 499–504).

> **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](https://www.juridica.ee/juridica_et.php?document=et/articles/2009/7/153890.SUM.php) (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.

## Related pages

- [Estonian insurance contract law](https://insurancelawestonia.ee/estonian-insurance-contract-law)
- [Insurable interest and sums insured](https://insurancelawestonia.ee/estonian-insurance-contract-law/insurable-interest-and-sums-insured)