When might a financial institution need to file a claim under the mortgage clause?

A financial institution might need to file a claim under the mortgage clause when the insured property is damaged because the mortgage clause is designed to protect the lender's interest in the property. When a borrower takes out a mortgage, the lender requires property insurance to safeguard against potential loss. If the property is damaged—such as from fire, natural disasters, or other covered events—the lender can file a claim directly under the mortgage clause to recover the funds needed to cover their financial interest.

Claiming under this clause helps ensure that the mortgage lender is compensated for its loss, up to the amount owed on the mortgage, thereby protecting the lender’s investment in the property.