The general rule is that a creditor of the insured not named in the policy cannot collect policy proceeds because property insurance is personal to the insured and does not run with the property (5 Couch on Ins. 3d 66:1). One important exception to this general rule is when a secured creditor is involved.
Article 9 of the Uniform Commercial Code regulates security interests in personal property and fixtures (UCC 9-102, 9-101). A "security interest" is, generally, "an interest in personal property or fixtures which secures payment or performance of an obligation." When a creditor has a "perfected" security interest, it has priority over other creditors' claims involving the same collateral. With certain exceptions, a creditor that files financing statements with the appropriate public authority, usually the secretary of state, "perfects" its security interest in the collateral. These filings become public record and serve as constructive notice to third parties -- such as an insurer of the creditor's interest in the property.
The insurer should be concerned about a third party's security interest when it prepares to pay an insured because it may also be liable to that third party. There is controversy regarding whether the insurer can be held liable without actual knowledge, however UCC liens are usually easily checked on-line through the Secretary of State’s office.
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