Definition - What does Mortgagee Clause mean?
A mortgagee clause is a clause in a property insurance policy which states that the property insurance company will pay out any claims to both the mortgagor (mortgage holder) and the mortgagee (mortgage lender). Typically, under a mortgagee clause, it is specified that the mortgagee, usually a bank, will still receive an insurance payout in the event of a claim regardless of any violations a mortgagor may have made.
Insuranceopedia explains Mortgagee Clause
Mortgagee clauses essentially serve the purpose of making sure that the parties who give mortgage loans will not suffer major losses if something happens to the property that the mortgage is for. For example, if the mortgage holder accidentally sets fire to the house and burns it down, a mortgage clause would insurance that the mortgage lender would be reimbursed for this loss, in addition to the mortgage holder. Without this clause in many property insurance policies, mortgage lenders would be vulnerable to many major losses.