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Guidelines Concerning Force-Place Property Insurance
The following guidelines set forth the Insurance Department’s position concerning single and dual interest force-placed personal risk homeowners insurance. In general terms, single interest force-placed insurance protects a lender’s interest in the borrower’s property when the borrower’s insurance policy containing a standard mortgage clause has lapsed. This situation arises in the event the borrower fails to secure insurance in accordance with his/her mortgage or in the event of foreclosure. Dual interest force-placed policies protect both the interests of the borrower and the lender.
The Department previously had taken the position that force-placed insurance coverage should be limited solely to the lender’s interest in the borrower’s property, namely the loan balance. Upon further review, the Department believes that it is prudent and appropriate, subject to the guidelines below, for dual interest force-placed insurance to be used for the protection of both the borrower’s and the lender’s interests in the event of default.
- Dual interest force-placed insurance is acceptable provided the insurer includes, in substantially the identical form as below, the following certifications as part of its filing with the Department seeking to impose a dual interest force-placed requirement:“In connection with the subject form filing identified by Connecticut Insurance Department tracking number xxxxxx, ABC Insurance Company (the “Insurer”), hereby certifies that in the event the borrower/insured fails to secure the required property insurance coverage on the collateral (the “Real Property”) securing his or her mortgage and such insurance is properly cancelled or nonrenewal, Insurer, through the lender, will notify the borrower, either under the terms of the mortgage or in a separate notice, that the lender shall have the right to secure such property insurance coverage (hereinafter referred to as “force-placed insurance”) subject to all terms and conditions of said mortgage. Insurer hereby certifies that such force-placed insurance shall cover both the interests of the borrower AND the lender; provided, however, in no event shall such dual interest force-placed insurance coverage exceed 100% of the replacement cost of the Real Property. In the event such dual interest force-placed insurance is secured by the lender, Insurer or its producer agrees to promptly provide a true, complete and accurate copy of such force-placed insurance policy (including, all declarations and endorsements) to the borrower.”
- Insurers must also file with the Department its single interest force-placed policies that it wishes to use. Such policies will cover the lender’s interest only where the borrower fails to provide evidence of continued coverage protecting the lender’s interest. The policy may not be used at the time of a closing to satisfy the lender’s requirement that the property be insured. Single interest force-placed coverage may not exceed the outstanding mortgage balance as of the effective date of coverage.
- Insurers must permit that if evidence of coverage, as required under the mortgage, is provided by or on behalf of the borrower within 45 days after the expiration date of any prior coverage, no charge, fee or minimum premium of any kind shall be imposed on the borrower in connection with any notice, endorsement or automatic coverage pertaining to any force-placed insurance policy secured by the lender prior to the expiration of such 45 day period. A binder or letter on company letterhead issued by a duly licensed Connecticut producer or insurer shall be considered evidence of coverage.
- Any proposed force-placed insurance program must provide that the notices or letter(s) sent to the borrower by the lender or insurer must clearly state in bold letters and at least 12 point size that the policy covers: (i) the lender’s interest only in a single interest force-placed policy; or (ii) both the lender and the borrower in a dual interest force-placed policy. In addition such notice or letter must state that any such dual or single interest policy does not protect the borrower’s contents or the borrower’s legal liability for damage to others.
- Coverage certificates issued under the master single interest policy for an individual property may be issued only by the Named Insured or the insurer’s duly licensed and appointed producer.