Managing Risk: Understanding Your Service Providers’ Insurance Coverages

June 10, 2019 |

There are few actions that a lender takes that has more potential for legal claims than a vehicle or collateral repossession. Ensuring that your service providers have the right types and amounts of insurance coverage is critical to managing the risk. While your contracts may be clear that the service provider indemnifies your institution in these matters, without the coverages in place, the contractual obligation may not mean much.

Unfortunately, there is no single policy that covers the full range of potential risks. Multiple policies are required. Understanding what types policies, key provisions and coverage amounts can be a confusing issue. This article attempts to shed light on the matter and provide a recommended framework.

Ask any repossession agency and they will tell you that after fuel costs, insurance is their top expense . In recent years, the number of insurance companies that are even willing to write policies for repossession agencies has shrunk dramatically. At the same time, due to the fewer number of agencies to spread the risk across, rates have grown dramatically. Even a single claim can result in large premium increases for the agency and can jeopardize its existence. For this reason, it is important that lenders have a clear view of what policies/coverage amounts are really necessary to mitigate the risks. Taking a “the more, the better” attitude that some have adopted in recent years is actually quite detrimental to the industry.

The following table summarizes the types and levels of coverage that, based on our experience as a nationwide repossession management firm, we feel are appropriate. Note that the recommendations vary based on whether your institution works directly with repossession agencies or a repossession management firm (forwarder).

Coverage Name	Description	Types of Risks Covered	Recommended Min. Coverage Amount (Repo Agency)	Recommended Min. Coverage Amount (Forwarder)
Workers Compensation Employer’s Liability	Statutory coverage for injuries arising in and out of the course of work. Part 2 of the workers compensation policy provides coverage for liability to employees for work-related bodily injury or disease, other than liability imposed by a workers compensation law.	Agent employee injured while attempting to recover a vehicle on behalf of a lien holder. Employee may make a claim if employer does not have workers compensation coverage	Statutory Each Accident – $100,000 Disease – $100,000 Policy Limit – $500,000	Statutory Each Accident – $100,000 Disease – $100,000 Policy Limit – $500,000
Automobile	3^rd party liability for property damage & bodily injury from the use of company owned, hired or non-owned vehicles.	Negligence based. Agent employee hits/damages another vehicle while driving a company owned vehicle (i.e. tow truck)	$1,000,000	$1,000,000
Drive Away	3^rd party liability for property damage & bodily injury from driving a vehicle recovered pursuant to a repossession order.	Negligence based. Agent employee damages a repossessed vehicle while driving it (i.e. moving it from one lot to another or moving to another place on the lot)	$1,000,000	$1,000,000
Garage Keepers	1^st party direct and primary liability for vehicles damaged in your agency’s care & control. Policy must stipulate direct and primary coverage.	Provides a variety of coverages against perils while on the repo agency lot if policy contains the correct wording	$350,000	$3,000,000 Note: Forwarder cannot technically qualify for garage keepers coverage. However, a Property of Others Policy accomplishes the same purpose
On Hook	1^st party liability for damage to vehicles while being towed by your agency.	Negligence based. Repossessed vehicle is damaged in transit due to not being properly secured.	$100,000	NA
Employee Dishonesty	1^st party liability coverage for property or money in your care & custody.	Employee embezzles money from the Company (i.e. employee coordinates the theft of multiple cars off the agent’s lot)	$100,000	$1,000,000
General Liability	3^rd party liability for property damage & bodily injury from your operations. Must stipulate that coverage applies to wrong repossession.	Negligence based. Employee does not verify the bank still needs the vehicle prior to obtaining it (wrongful repossession errors & omissions).	$1,000,000 per occurrence $2,000,000 aggregate	$10,000,000
Cyber Liability	3^rd party liability for damages relating to the theft and improper use of customer data		NA	Minimum of $5,000,000

Following these guidelines can go a long way towards mitigating risk, but it is important to note that things can still go wrong. Some insurance companies, in an effort to reduce claims, have inserted problematic policy language/exclusions in their policies. It takes expert review to identify these situations. One benefit of using a national repossession management company to manage your repo.

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