PER CURIAM:
The subject of this appeal is a restaurant business encumbered originally by a single mortgage to a bank. The owner sold the business and took back a mortgage. Shortly thereafter, the purchaser in turn sold the property and also took back a mortgage as part of the purchase price. The third owner then had a restaurant saddled with three mortgages. While such “borrowing” may not have dulled the third owner’s “edge of husbandry,” it did result in a cash crunch that unsurprisingly rendered the owner unable either to service the mortgages or to pay the fire insurance premiums on the property. After the owner went bankrupt, a fire destroyed the restaurant, bringing about a forced sale of the property, and precipitating the instant litigation contesting the distribution of the proceeds of the sale.
BACKGROUND
This is an appeal from a July 18, 1986 order of the District Court for the Northern District of New York (McCurn, J.) that affirmed a decision of the bankruptcy court, 79 B.R. 527, which had ruled on the disputed claims to the proceeds. The restaurant property had been owned until March 1980 by Col-Mur Enterprises, Inc. (Col-Mur), subject to a first mortgage held by Key Bank. Col-Mur then sold the property to a company now known as Iaia’s Crossroads Restaurant, Ltd. (Iaia), the appellant. Iaia took the property subject to the bank’s mortgage and gave back a sec[415]*415ond mortgage to Col-Mur. Under the terms of the second mortgage Iaia promised to keep the property insured against fire for Col-Mur’s benefit, and to deliver the insurance policies to and reimburse Col-Mur for the cost of any premiums.
Three years later Iaia sold the property to S.P.G. of Schenectady, Inc. (S.P.G.). S.P.G., in turn, assumed the bank’s first and Col-Mur’s second mortgages, and gave Iaia a third mortgage for $278,000. In accordance with these mortgages, S.P.G. obtained fire insurance naming Col-Mur and Iaia as the insureds. When S.P.G. ran into financial difficulties, it filed a Chapter 11 bankruptcy petition on October 4, 1984, which was later converted into a Chapter 7 proceeding. S.P.G. thereafter defaulted on its mortgage payments and allowed the fire insurance policy that protected Col-Mur’s and Iaia’s interests to lapse on November 11, 1984.
Observing the heavy economic seas that S.P.G. had encountered — and its implications for their interests — Iaia and Col-Mur obtained separate fire insurance policies. Appellant Iaia obtained a $300,000 policy with the United National Insurance Company (United National). Col-Mur’s $250,000 policy was written by the appellee, National Casualty Company (National) and designated as the named insureds the "Trustees for the Benefit of the Former Stockholders of Col-Mur Enterprises, Inc.” (hereafter simply called “Col-Mur”). Col-Mur’s policy contained a subrogation clause permitting National to be subrogated to Col-Mur’s rights, as mortgagee, against S.P.G. As discussed below, whether Col-Mur obtained the insurance for its own, i.e., “single” benefit, or for S.P.G.’s and Iaia’s benefit, i.e., “dual” benefit, as well, is the issue we must decide.
Fire destroyed the restaurant on December 26, 1984 and five days later, Col-Mur instituted foreclosure proceedings and later obtained default judgment of foreclosure. With S.P.G.’s equity of redemption gone, the trustee in bankruptcy proposed to sell the property. To accomplish this, he brought an action against, inter alia, Col-Mur, Iaia, National, and United National to compel the two insurance companies to pay their respective polic'es. The trustee concluded that the insurance payments would reduce the mortgage debts owed by S.P.G. to Col-Mur and Iaia and thus decrease their shares of the sale proceeds. National paid Col-Mur $250,000 and United National paid Iaia $167,000 on their respective policies. The sale of the property produced $325,000. The order of priority for participation in the proceeds was as follows: costs of the sale, Key Bank’s first mortgage of approximately $15,000, and the balance due Col-Mur under its mortgage after subtracting the insurance proceeds. The remainder, approximately $200,000, is the subject of this litigation.
In its answer to the trustee’s complaint, National asserted that it was subrogated to Col-Mur’s lien status and was therefore entitled to the lion’s share of the proceeds from the sale of the property. Iaia cross-claimed against National and argued that § 254(4) of New York’s Real Property Law required that National’s payment to Col-Mur be deducted from the mortgage principal owed by S.P.G. to Col-Mur for which Iaia was secondarily liable. This appeal arose in the bankruptcy court when National moved successfully to dismiss Iaia’s cross-claim.
In a Decision and Order dated January 8, 1986, the Bankruptcy Court for the Northern District of New York (Mahoney, J.) found that Col-Mur had obtained the National policy for its own exclusive benefit. The bankruptcy court also held that § 254(4) did not require reduction of the mortgage debt by the amount of the insurance proceeds paid pursuant to National’s policy. The district court concluded upon Iaia’s appeal that the bankruptcy judge had correctly found Col-Mur’s policy to be a single interest policy. It ruled that Real Property Law § 254(4) did not apply and, even if it did apply, § 254(4) did not negate the operation of the subrogation clause in Col-Mur’s policy with National. Finally, the district court rejected Iaia’s argument that a subrogation clause like the one contained in Col-Mur’s policy becomes operative only when there is proof of fraud or of [416]*416an underlying tort claim, and that it is otherwise inoperative. We now reverse.1
DISCUSSION
Iaia advances several theories as to why it is entitled to the proceeds. First, it claims that Col-Mur’s policy with National was for S.P.G.’s and Iaia’s benefit as well as Col-Mur’s and therefore, under § 254(4), National is not entitled to subrogation until their interests are fully recovered. Second, Iaia argues that even if Col-Mur’s policy with National only covers Col-Mur’s interest, § 254(4) operates to nullify the subro-gation clause. Third, Iaia claims that the subrogation clause in the policy only becomes operative when there is proof of fraud or of an underlying tort claim. Before taking up these claims, we first examine § 254(4).
A. § 254(4) of the Real Property Law
Section 254 construes several clauses often contained — but not necessarily required — in mortgage instruments. See N.Y. Real Prop. Law § 254 (McKinney 1968 & Supp.1987). In other words, when the parties to a mortgage incorporate the relevant language, that language must then be construed according to the statute. Section 254(4), entitled “Mortgagor to keep buildings insured,” construes a covenant2 by the mortgagor that it will insure the mortgaged property against fire.3 Section [417]*417254(4) is implicated here because the relevant language was included in the bond and mortgage given by Iaia to Col-Mur.
In instances where a damaged property has not been repaired, § 254(4) requires that the mortgagee apply insurance proceeds to offset the mortgage principal and to pay to the mortgagor any proceeds exceeding that amount.
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PER CURIAM:
The subject of this appeal is a restaurant business encumbered originally by a single mortgage to a bank. The owner sold the business and took back a mortgage. Shortly thereafter, the purchaser in turn sold the property and also took back a mortgage as part of the purchase price. The third owner then had a restaurant saddled with three mortgages. While such “borrowing” may not have dulled the third owner’s “edge of husbandry,” it did result in a cash crunch that unsurprisingly rendered the owner unable either to service the mortgages or to pay the fire insurance premiums on the property. After the owner went bankrupt, a fire destroyed the restaurant, bringing about a forced sale of the property, and precipitating the instant litigation contesting the distribution of the proceeds of the sale.
BACKGROUND
This is an appeal from a July 18, 1986 order of the District Court for the Northern District of New York (McCurn, J.) that affirmed a decision of the bankruptcy court, 79 B.R. 527, which had ruled on the disputed claims to the proceeds. The restaurant property had been owned until March 1980 by Col-Mur Enterprises, Inc. (Col-Mur), subject to a first mortgage held by Key Bank. Col-Mur then sold the property to a company now known as Iaia’s Crossroads Restaurant, Ltd. (Iaia), the appellant. Iaia took the property subject to the bank’s mortgage and gave back a sec[415]*415ond mortgage to Col-Mur. Under the terms of the second mortgage Iaia promised to keep the property insured against fire for Col-Mur’s benefit, and to deliver the insurance policies to and reimburse Col-Mur for the cost of any premiums.
Three years later Iaia sold the property to S.P.G. of Schenectady, Inc. (S.P.G.). S.P.G., in turn, assumed the bank’s first and Col-Mur’s second mortgages, and gave Iaia a third mortgage for $278,000. In accordance with these mortgages, S.P.G. obtained fire insurance naming Col-Mur and Iaia as the insureds. When S.P.G. ran into financial difficulties, it filed a Chapter 11 bankruptcy petition on October 4, 1984, which was later converted into a Chapter 7 proceeding. S.P.G. thereafter defaulted on its mortgage payments and allowed the fire insurance policy that protected Col-Mur’s and Iaia’s interests to lapse on November 11, 1984.
Observing the heavy economic seas that S.P.G. had encountered — and its implications for their interests — Iaia and Col-Mur obtained separate fire insurance policies. Appellant Iaia obtained a $300,000 policy with the United National Insurance Company (United National). Col-Mur’s $250,000 policy was written by the appellee, National Casualty Company (National) and designated as the named insureds the "Trustees for the Benefit of the Former Stockholders of Col-Mur Enterprises, Inc.” (hereafter simply called “Col-Mur”). Col-Mur’s policy contained a subrogation clause permitting National to be subrogated to Col-Mur’s rights, as mortgagee, against S.P.G. As discussed below, whether Col-Mur obtained the insurance for its own, i.e., “single” benefit, or for S.P.G.’s and Iaia’s benefit, i.e., “dual” benefit, as well, is the issue we must decide.
Fire destroyed the restaurant on December 26, 1984 and five days later, Col-Mur instituted foreclosure proceedings and later obtained default judgment of foreclosure. With S.P.G.’s equity of redemption gone, the trustee in bankruptcy proposed to sell the property. To accomplish this, he brought an action against, inter alia, Col-Mur, Iaia, National, and United National to compel the two insurance companies to pay their respective polic'es. The trustee concluded that the insurance payments would reduce the mortgage debts owed by S.P.G. to Col-Mur and Iaia and thus decrease their shares of the sale proceeds. National paid Col-Mur $250,000 and United National paid Iaia $167,000 on their respective policies. The sale of the property produced $325,000. The order of priority for participation in the proceeds was as follows: costs of the sale, Key Bank’s first mortgage of approximately $15,000, and the balance due Col-Mur under its mortgage after subtracting the insurance proceeds. The remainder, approximately $200,000, is the subject of this litigation.
In its answer to the trustee’s complaint, National asserted that it was subrogated to Col-Mur’s lien status and was therefore entitled to the lion’s share of the proceeds from the sale of the property. Iaia cross-claimed against National and argued that § 254(4) of New York’s Real Property Law required that National’s payment to Col-Mur be deducted from the mortgage principal owed by S.P.G. to Col-Mur for which Iaia was secondarily liable. This appeal arose in the bankruptcy court when National moved successfully to dismiss Iaia’s cross-claim.
In a Decision and Order dated January 8, 1986, the Bankruptcy Court for the Northern District of New York (Mahoney, J.) found that Col-Mur had obtained the National policy for its own exclusive benefit. The bankruptcy court also held that § 254(4) did not require reduction of the mortgage debt by the amount of the insurance proceeds paid pursuant to National’s policy. The district court concluded upon Iaia’s appeal that the bankruptcy judge had correctly found Col-Mur’s policy to be a single interest policy. It ruled that Real Property Law § 254(4) did not apply and, even if it did apply, § 254(4) did not negate the operation of the subrogation clause in Col-Mur’s policy with National. Finally, the district court rejected Iaia’s argument that a subrogation clause like the one contained in Col-Mur’s policy becomes operative only when there is proof of fraud or of [416]*416an underlying tort claim, and that it is otherwise inoperative. We now reverse.1
DISCUSSION
Iaia advances several theories as to why it is entitled to the proceeds. First, it claims that Col-Mur’s policy with National was for S.P.G.’s and Iaia’s benefit as well as Col-Mur’s and therefore, under § 254(4), National is not entitled to subrogation until their interests are fully recovered. Second, Iaia argues that even if Col-Mur’s policy with National only covers Col-Mur’s interest, § 254(4) operates to nullify the subro-gation clause. Third, Iaia claims that the subrogation clause in the policy only becomes operative when there is proof of fraud or of an underlying tort claim. Before taking up these claims, we first examine § 254(4).
A. § 254(4) of the Real Property Law
Section 254 construes several clauses often contained — but not necessarily required — in mortgage instruments. See N.Y. Real Prop. Law § 254 (McKinney 1968 & Supp.1987). In other words, when the parties to a mortgage incorporate the relevant language, that language must then be construed according to the statute. Section 254(4), entitled “Mortgagor to keep buildings insured,” construes a covenant2 by the mortgagor that it will insure the mortgaged property against fire.3 Section [417]*417254(4) is implicated here because the relevant language was included in the bond and mortgage given by Iaia to Col-Mur.
In instances where a damaged property has not been repaired, § 254(4) requires that the mortgagee apply insurance proceeds to offset the mortgage principal and to pay to the mortgagor any proceeds exceeding that amount. Thus, § 254(4) is designed to prevent the mortgagee from receiving a windfall: the mortgagee only has an interest in the outstanding mortgage debt. Section 254(4) insures that the mortgagee, upon the mortgagor’s default, will not recover this debt twice: once from the insurance company and again from the proceeds of the sale of the property. The statute does not explicitly address the rights of the mortgagee’s insurance company as against the mortgagor or junior mortgagees.
With this background, we now turn to the issues raised by Iaia.
B. The Status of Col-Mur’s Policy with National
As mentioned above, Iaia argues that Col-Mur’s policy with National was intended to cover Iaia’s and S.P.G.’s interests as well as Col-Mur’s, that is, it was a dual interest policy. The bankruptcy court found — and the district court agreed — that Col-Mur had procured a single interest policy because it was the only insured named in its policy. We believe such a conclusion is a plain error of lew.
We hold that all insurance policies taken out by a mortgagee pursuant to § 254(4) upon the mortgagor’s default are automatically “dual interest” policies. A close reading of the text of § 254(4) points persuasively toward this finding. First, § 254(4) provides that if the mortgagor defaults in insuring the premises, the mortgagee “may make such insurance from year to year.” If the mortgagor had insured the premises himself, he undoubtedly would have benefited from the policy. It follows that the mortgagee’s acquisition of “such insurance” is — absent compelling evidence to the contrary — similarily intended to benefit the mortgagor.
Second, § 254(4)’s imposition of an obligation on the mortgagor to reimburse the mortgagee for any premiums paid thereunder is even stronger evidence that the section creates dual interest policies as a matter of law. Finding that § 254(4) requires reimbursement for not only a mortgagee’s payments for a dual interest policy but also for a single interest policy — as National contends here — would be highly inequitable. The result would be that the mortgagor would be statutorily required to pay premiums for insurance that might not cover him and for which he might receive no benefit. We cannot attribute to the New [418]*418York legislature an intent to bring about such an inequitable result.
As a final note, as far as the record shows, the insurance company charged the same premiums regardless of whether the mortgagor or the mortgagee took out the policy. If the policy had been intended to be a single interest policy and if, as National argues, it was subrogated to Col-Mur’s lien position to the extent of payments made, National would have assumed less risk than under a dual interest policy. Presumably, then, National would have charged lower premiums for a single interest policy. The apparent equality in premium costs here also points toward the conclusion that the policy was intended to benefit the mortgagor as well as the mortgagee, that is, it was a dual interest policy.
National is not entitled to subrogation under a dual interest policy, except under certain circumstances. In Reed v. Federal Insurance Co., 123 A.D.2d 188, 196, 510 N.Y.S.2d 618, 623 (2d Dep’t 1987), the court held that in paying insurance proceeds to the mortgagee, the insurer had done no more than the policy required, and therefore could not invoke its subrogation rights. Only an adjudication that the mortgagor had been complicit in the act of arson that had destroyed the property (or had otherwise forfeited her rights under the policy) would have triggered the subrogation clause. Without such a determination, the insurance proceeds paid to the mortgagee were held to reduce the mortgage debt without giving the insurer any cause of action against the mortgagor. Looking at the same situation in reverse, the court in Larchmont Federal Savings & Loan Association v. Ebner, 89 A.D.2d 1009, 1009, 454 N.Y.S.2d 450 (2d Dep’t 1982), held that where the mortgagors had violated the conditions of the policy, thereby precluding their recovery from the insurer, the insurer’s payment to the mortgagee could not be applied to extinguish the mortgage debt. Thus, only a showing of the mortgagor’s culpable conduct would prevent the insurance proceeds from being applied to the mortgage debt and would trigger the insurer’s subrogation rights under the standard New York policy’s mortgage and subrogation provisions. National fails to allege such conduct here.
Given these considerations, we hold that the trial court erred in finding that the policy here was a single interest policy. Since Col-Mur’s policy was in fact a dual interest policy, National therefore was not entitled to be subrogated to Col-Mur’s lien position over the interests of Iaia and S.P. G. Accordingly, we need not address the possible extent of National’s subrogation rights or whether a subrogation clause is triggered only in cases when there is proof of fraud or of an underlying tort claim.
CONCLUSION
For the reasons set forth above, the judgment of the district court is reversed and the matter remanded to it for the distribution of the sale proceeds in accordance with this opinion.