Legal Definitions - open mortgage clause

An open mortgage clause is a provision in an insurance policy that protects the rights of a mortgagee when the insured property is subject to a mortgage. This clause usually provides that any insurance proceeds must be allocated between the named insured and the mortgagee "as their interests may appear."

For example, if a homeowner has a mortgage on their property and the property is damaged in a fire, the insurance company will pay out the insurance proceeds to both the homeowner and the mortgagee. The amount each party receives will depend on their respective interests in the property.

However, an open mortgage clause does not protect the mortgagee if the insured mortgagor does something to invalidate the policy, such as committing fraud. In such cases, the mortgagee may not receive any insurance proceeds.

Overall, an open mortgage clause provides some protection for the mortgagee, but it is not as comprehensive as a standard mortgage clause.