Mortgagor's Duty of Procuring Insurance In Texas

An agreement between a mortgagor and a mortgagee under which the mortgagor is charged with the duty of procuring insurance upon the mortgaged property for the benefit of the mortgagee will encumber the insurance proceeds for the benefit of the mortgagee. See Fidelity & Guar. Ins. Corp. v. Super-Cold Southwest Co., 225 S.W.2d 924, 927 (Tex. Civ. App. - Amarillo 1949, writ ref'd n.r.e.). Where the security agreement requires the mortgagor to have a provision in the insurance policy that makes the proceeds payable to the mortgagee, equity will treat the policy as having contained such a provision. See Duval County Ranch Co. v. Alamo Lumber Co., 663 S.W.2d 627, 632 (Tex. App.-Amarillo 1983, writ ref'd n.r.e.); Fidelity & Guar. Ins. Corp., 225 S.W.2d at 927. Once the insurer is informed of the security agreement's provisions, the duty rests with the insurer to treat the proceeds of the policy as though these provisions were written into the policy and to treat the mortgagee as an insured or the person entitled to the proceeds. See Fidelity & Guar. Ins. Corp., 225 S.W.2d at 927. This common law rule is not affected by the UCC. See TEX. BUS. & COMM. CODE 9.104(7) (Vernon Supp. 2000). Article 9 does not apply to a transfer of an interest or a claim in or under any policy of insurance, except in respect to proceeds. See id. Insurance payable by reason of loss or damage to the collateral is proceeds, except to the extent that it is payable to a person other than a party to the security agreement. See id. 9.306(a) (Vernon Supp. 2000).