Research on Legal Issues of Banks Obtaining Loan Mortgage Insurance Benefits under Mortgage Loans 

Research on Legal Issues of Banks Obtaining Loan Mortgage Insurance Benefits under Mortgage Loans

Introduction

In a mortgage loan, to guarantee the realization of the interests of the creditor’s rights, the bank usually requires the borrower to provide collateral security. However, if the mortgaged property is damaged or lost due to objective reasons because the law does not give the mortgagee the insurance money to directly seize the mortgaged property, Therefore, before the mortgagee obtains the compensation for the mortgaged property, there is a risk that the mortgagee will not be able to receive the compensation for the mortgaged property in priority. For this reason, the bank, as the mortgagee, hopes to directly receive the compensation for the mortgaged property to realize its creditor’s rights and interests.

In practice, banks usually require borrowers to insure the collateral and designate the bank as the “first beneficiary” in the insurance policy, so that the bank can directly receive insurance compensation for the collateral after an insured accident occurs. However, in my country’s “Insurance Law”, the beneficiary is only specified in personal insurance, but not in property insurance. The concept of “first beneficiary” appeared in the “Interim Measures for Employee Housing Mortgage Loans” issued by the Real Estate Credit Department of China Construction Bank on September 23, 1992. There is no concept of “first beneficiary” in the Measures for the Administration of Personal Housing Loans. Therefore, in the current legal provisions of our country, there is no provision on the beneficiary of property insurance for the time being. What kind of rights the beneficiary in property insurance enjoys, and whether it has obtained the right to claim insurance money because of it, is not clear in the absence of clear provisions in the law. To this end, the Shanghai High Court also made it clear in the 2009 and 2010 “Financial Trial White Papers”: According to the Insurance Law and the relevant provisions of the Supreme Court, the beneficiary can only be set in the personal insurance contract. And it is recommended that insurance companies clean up and correct the signed contracts to protect the reliance interests of policyholders.

When hearing disputes over property insurance contracts, the court also held that the beneficiary refers to the person who has the right to claim insurance money in the personal insurance contract, and the “first beneficiary” in the property insurance contract can only be made if the insurance company makes claims. Obtain the right to receive insurance money, but not have the right to claim insurance money. The beneficiary’s claim to the insurance company for the right to claim benefits cannot be supported. The court held that the connotation of the beneficiary in the property insurance contract and the beneficiary in the life insurance contract are not the same. In fact, in property insurance, the insured and the insurer agree that when the insured accident occurs, the third party will be the beneficiary to receive the insurance compensation, which is an act of setting rights for the third party; It can be called “beneficiary” in general terms, but it is not the same as the concept of “beneficiary” in insurance law. The beneficiary in life insurance refers to the person who enjoys the right to claim insurance money after the death of the insured. When the insurance company refuses to settle the claim, the beneficiary can file a lawsuit with the court as an independent litigation subject. In property insurance, the beneficiary does not obtain the right to claim insurance money, the right to claim insurance money is still enjoyed by the insured, and what the beneficiary obtains is only the right to directly receive insurance compensation from the right to claim insurance money. In the absence of clear provisions on the beneficiaries of property insurance contracts in Chinese laws, the concept of beneficiaries in property insurance will be confused with the beneficiaries in life insurance.

Therefore, under the mortgage loan, listing the bank as the beneficiary of the relevant property insurance may have the risk of not being recognized by judicial practice, which will endanger the feasibility of the bank to finally collect insurance benefits and realize debt repayment. This article attempts to discuss how the bank should define its position in the insurance contract and how to obtain the insurance income smoothly from the perspective of legal theory, combined with the traditional insurance theory of Anglo-American law.

The bank directly obtains insurance benefits as the insured

As far as the current business practice is concerned, after a bank signs a mortgage-guaranteed loan contract with a borrower and mortgages the relevant property of the borrower, it often requires the borrower to insure the mortgaged property. In this insurance contract, the borrower is often both the insured and the insured as the owner of the mortgaged property, while the bank becomes the “beneficiary” according to the insurance company’s approval. As mentioned above, in this case, if an insurance accident occurs, according to the provisions of the “Insurance Law”, only the borrower who is the insured has the right to request the insurance company to pay the insurance money. At this time, the bank will be in a relatively passive position. Status, that is, if the borrower does not claim insurance compensation, the bank will not have the right to ask the insurance company to pay the insurance money to itself.

Article 12 of my country’s “Insurance Law” stipulates that the insured refers to the person whose property or person is protected by the insurance contract and has the right to claim insurance money. Therefore, in property insurance, the insured has the legal right to claim insurance money. So is it possible to directly list the bank as the insured of the property insurance contract instead of the borrower, to protect the right of the bank to finally request insurance money? In this regard, Article 12 of the Insurance Law also stipulates that the insured of property insurance shall have an insurable interest in the subject matter of insurance when an insured accident occurs. Therefore, to answer the above questions, we must start with the analysis of the identification of insurable interests.

1. The security interest is an insurable interest

Article 12 of the “Insurance Law” stipulates that insurable interests refer to the legally recognized interests of the insured or the insured in the subject matter of insurance. This is a general elaboration of the concept of insurable interest in the Insurance Law. However, what constitutes a “legally recognized interest” is not specified in the Insurance Law, resulting in the identification of insurable interest in practice. There will be disputes. According to the traditional view of the theoretical circle, the owner of the property right enjoys the insurable interest in the property based on the property right. The real right here includes not only the ownership but also the security real right.

It is not difficult to understand that the owner of the property has an insurable interest. This is because property ownership is the highest right a person has on the property, which is expressed as the exclusive right to exclude others from using and enjoying the property he owns. The owner causes direct economic loss, so of course, the owner has an insurable interest in the property. As far as the security right is concerned, although it does not represent the direct control, use, and income of the object, the basis of its rights is also based on the existence and integrity of the subject matter. When the value of the subject matter decreases due to damage, the final realization of the security interest will be affected, and when the subject matter is lost, the security interest will be extinguished. Therefore, in the event of damage to or loss of the subject matter of the guarantee, the right of the guarantor owner to have priority in compensation for the subject matter will also be affected accordingly. The theoretical basis for the establishment of insurable interests is to prevent the moral hazard that may occur to those who have no interest in the subject matter of insurance. If the insured has no interest in whether the insured object is in good condition or not, then it is difficult to guarantee that the insured will not harm the insured property or allow it to be damaged or lost to obtain insurance money, and the insurance contract will eventually become a gamble. Therefore, when the damage or loss of the subject matter insured will affect the final priority of the security holder, the moral hazard of the security holder is controllable, and it should have an insurable interest in the security subject matter.

However, it is worth noting that, unlike the owner, the security interest in the subject matter should be limited by the size of the interest. For example, the mortgagee has an insurable interest in the mortgaged object, but the scope of the insurable interest shall not exceed the value of the object. The sum of the delay interest and the cost of enforcing the mortgage.

2. Defects of listing banks as insured

Although according to the theory of insurable interest, it is feasible to list the bank as the insured of the relevant property insurance contract, to finally obtain the direct insurance claim right, in practice, it may be objectively caused by the following commercial reasons. hard to accomplish.

First, when an insurance accident occurs, the insurance money requested by the bank as the insured will be directly owned by the bank. If the money is seen as an offset against the borrowing, it would be the equivalent of accelerating the maturity of the loan, which is unfair to the borrower who would have been able to meet the deadline. Therefore, borrowers may be reluctant to accept such insurance arrangements for the reasons mentioned above when entering into loan contracts.

Secondly, according to the provisions of the “Insurance Law”, although the insured is not a party to the insurance contract, it is a related party to the insurance contract and also has some statutory insurance obligations, including the need to maintain the safety of the insured object, and to maintain the safety of the insured object. In case of an increase, the insurer shall be notified promptly, and necessary measures shall be taken to prevent or reduce losses when the insured event occurs. Since the bank is not the owner of the insurance subject (often not the actual user), it is difficult to maintain the insurance subject daily, and it is difficult to immediately understand the increase in the degree of danger of the insurance subject. Measures also require certain costs, and the burden of these additional costs will be an obstacle for banks to decide to become insured.

By aamritri

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