Q: An insured is buying a house and will have a cosigner on the mortgage. The cosigner would not have any ownership of the property. Can or should the cosigner be named in any way on the homeowners policy? Is there an appropriate category of additional interest that could be used to include them?

Response 1: If the loan guarantor isn't deeded, ISO has an additional interest endorsement recognizing their financial interest and providing notice of cancellation. Some insurers will use an additional insured endorsement for Section I – Property Coverage only, as there's not a need for liability coverage if they're not an owner. 

Make sure the lender doesn't insist on adding the guarantor to the deed though. If they're on the deed, an additional insured endorsement that included liability for the premises would be needed as well. 

Response 2: If there's a loss to the building, the bank's interest, which is the same as the cosigner's interest, is covered to the extent of the policy. If the owner is allowed to make repairs, there's no impairment of the cosigner's interest. If the bank takes the money and reduces the loan balance, the cosigner's obligation is reduced accordingly. In other words, the cosigner is already covered without the need to add them by endorsement.

Response 3: Cosigning on a mortgage gives the cosigner an insurable interest in the property. To put it another way, it allows them to be sued in a liability situation or may require them to come up with the mortgage total if the house suffers an uncovered or only partially covered loss. The cosigner should be listed as an additional insured on the insurance policy.

Response 4: Many lenders require cosigners on mortgages to be listed as owners on title records for the subject properties. Clearly, they have an insurable interest in it. Apparently, this is not the case in your instance, as you indicate they would not have any ownership of the property.

The exact relationship established between the borrower and the cosigner must be clarified. The cosigner should be listed as an additional named insured to indemnify them to the extent of their interest.

Response 5: The cosigner should consult with their attorney regarding laws in the state where they could be brought in for liability issues—they may possibly pursue a hold harmless agreement with the owners. Maybe consider adding the HO 04 41 additional insured endorsement for the liability portion.

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