Mortgagee Interest Insurance

Mortgagee interest insurance (MII) is cover taken out by a ship-finance lender against the risk that the borrower’s own hull, war risks or liability policies fail to respond to a casualty, leaving the mortgage unsecured by the insurance the security package assumed would pay.

The exposure it answers is not the casualty but the owner’s conduct: the owner’s cover can fail for a breach of the duty of fair presentation, for loss occurring while a warranty is in breach (cover is suspended rather than discharged under the Insurance Act 2015 s.10 for English-law contracts from 12 August 2016), want of due diligence or an unlawful voyage, all of which are acts of the owner or of a charterer in possession rather than of the lender. Mortgagee interest additional perils (pollution) cover, MIAP, extends the same logic to the pollution liability exposure. Both are written for the lender’s benefit and neither responds to the owner.

The full article will cover the scope of MII and MIAP, the perils each answers, the relationship with the assignment of insurances and the loss payable clause, and why a bareboat charter party financing makes the cover more relevant, since the party whose conduct can void the policy is not the party the lender contracted with.