When can a mortgagee's claim be denied by the insurer?

A mortgagee's claim can be denied by the insurer if the insured has committed fraud. In the context of property insurance, fraud can involve deceptive acts or misrepresentations made by the insured to gain benefits from the insurer that they would not otherwise be entitled to. This could include providing false information when applying for coverage, inflating loss claims, or omitting important details about the property. Such actions violate the terms of the insurance contract and undermine the trust essential to the insurance relationship. Therefore, if fraud is established, the insurer is justified in denying the claim, protecting itself from financial losses due to dishonest conduct.

Underinsurance and a decrease in value may affect the amount of recovery or payout but do not typically serve as grounds for outright denial of a mortgagee’s claim in the same manner as fraud. Additionally, a late payment could result in a penalty or a lapse in coverage but does not automatically negate the claim itself. In contrast, fraud directly impacts the insurer's obligation under the policy, warranting a denial.