The Massachusetts Appeals Court recently affirmed the Superior Court’s granting of an insurer’s motion to dismiss after finding that the standard mortgage clause in a business owner’s policy did not confer coverage on a mortgagee for loss of rent where the mortgagor had executed an assignment of rent in the event of default. Casco Bay Finance Company, LLC v. Quincy Mutual Fire Insurance Company, 77 Mass.App.Ct. 913 (August 16, 2010). To view the opinion click here and enter "08/16/2010" in the date field.

The underlying claims arose when a multi-unit rental property was seriously damaged by a fire, rendering the property uninhabitable. The plaintiff was assigned the mortgage by the mortgagee and thereafter foreclosed on the property, sustaining a large deficiency. Plaintiff then sought coverage under the business owner’s policy (the “Policy”) issued to the property owner for rent the plaintiff claimed it was entitled to receive after the assignment of the mortgage.

The court held that the mortgage clause in the Policy, which stated that the insurer would “pay for covered loss of or damage to real estate to each mortgageholder shown in the Declarations, or in an attached schedule, in the order of precedence, as interests may appear,” did not confer coverage on the plaintiff. The court found that the clause cited by the plaintiff referred to “real estate,” not “rent,” and therefore did not apply to the lost rent alleged by the plaintiff.

The court also rejected the plaintiff’s argument that it was entitled to recover the lost rent under the coverage provided by the Policy for loss of income because such coverage was limited to actual loss of business income sustained by the insured. The court found that the loss of income coverage was for the benefit of the insured for necessary suspension of his operations, not to cover the morgagee.