Are Your Repossession Agents Properly Insured?

Source: Monitor Daily

 

 

 

There are few actions that a lender takes that have more potential for legal or damage claims than a vehicle or equipment 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 lenders have adopted in recent years is actually quite detrimental to the industry as the coverage can become prohibitively expensive and, ultimately, forces agencies out of business, thus reducing competition.

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)
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
Automobile	3rd 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
Drive Away	3rd 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
Garage Keepers	1st 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
On Hook	1st 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
Employee Dishonesty	1st 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
General Liability	3rd 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
Cyber Liability	3rd party liability for damages relating to the theft and improper use of customer data		NA

 

Following these guidelines can go a long way towards mitigating the inherent risks in the repossession process; however, some exposure remains.   For instance, 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.

Having clear guidelines and requirements is helpful, but tracking compliance can be a challenge.  There are two basic steps that I would recommend:

1. Ensure that the repossession agency provides an Accord certificate that identifies your institution as an additional insured.  This will help ensure that you get a notification if there are changes or lapses with the policies, and
2. As a backstop, ask for an updated current certificate every six months.

One way to mitigate these risks is to work with a national repossession management company that assumes the responsibility and liability associated with these issues.  Instead of trying to manage these issues across multiple repossession agency relationships, you just manage one.  If anything goes wrong during the repossession process or post repossession storage, the national firm is responsible. The national firms also typically carry larger policies and much greater financial resources.

 

Source: Monitor Daily