Does Your Repossession Company Have the Right Insurance Coverage?

Your company has been sued because of the acts of one of your recovery agents. The insurance company of the recovery company has denied the claim because they claim they do not cover repossessions or repossession activity. Your company is now faced with defending itself, paying attorney fees, and a possible payment settlement to the debtor.

How could this be prevented? What could you or your company do to verify the coverage of the repossession company? What questions should be asked and to whom?

One thing is certain: it must be done in writing. The other issue is: what needs to be asked and what coverages are needed to protect you company? For the most part, there are 12 questions that need to be asked to cover the largest portion of your exposure.

The Insurance Company

1. What Is the Current A. M. Best Rating of the Insurance Company?

A. M. Best is a company much like Dunn & Bradstreet. The only difference is they determine how financially strong the insurance company is. They will rate the company much like a report given in a credit bureau - for example, 'A', 'B', or 'not rated'. The letter can also have a number following it. The higher the number in this case, the stronger the insurance company is. For example, an A-13 rated company would be valued in the billions of dollars, whereas an A rated carrier is valued in the low millions. The stronger the company, the lower the chances of their going out of business. 

2. Is the Company a Domestic or Foreign Carrier?

A company that is considered domestic is just that. The company is domiciled in the United States and meets the criteria for the state where they are located and/or licensed to do business. The fact that they are domestic and licensed to do business in each state will bring them under that particular state's guidelines. They will pay taxes to the states in which they are licensed to do business. If something should happen to the insurance company and they become insolvent, and are not able to pay claims, the State Insurance Department will take over the claims and handle them. 

3. Is the Company Approved As an Admitted Carrier in the Same State in Which the Recovery Agent Is Located?

If the insurance company is not an admitted carrier and happens to go out of business, the State Guaranty Fund cannot be used to settle the claim. Each company must be approved by each State Insurance Department in order to qualify. A state will allow a company to operate as an excess lines carrier. What that means to you is that they are allowed to write business in the state, but their insured are not eligible for any state protection. The state will generally allow these companies to operate because they (repossessors, mine workers, roofers, window cleaners) are considered a high risk and most insurance companies will not insure them.

4. What Are the Limits of Liability?

Most finance companies and banks set their own standards for the limits of coverage with which they are comfortable. The liability coverage should be a minimum of $1,000,000.00. PRIME, INC. has secured a policy for the $1,000,000.00 Coverage.

5. Are Defense Costs Covered in Addition to the Limits of Liability?

It is important that defense costs are in addition to the limits of coverage. Attorney fees and court costs can literally eat up a lot of money. Should a claim be made and the legal fees total more than the limits of the policy, there will not be any money left to pay the claim. PRIME's policy will pay all legal fees in addition to the amount of the insurance per claim.

6. Is On-Hook Coverage for the Repossessed Vehicle Included in the Policy?

On-hook coverage is when the vehicle is being towed by the recovery company. Should the vehicle come off-hook and hit a tree or another vehicle, the On-Hook Insurance will pay for the damage to the repossessed vehicle. The limits of coverage under PRIME's policy is $1,000,000.00.

NOTE: The damage caused by the repossessed vehicle when it comes off-hook (hits a tree, or another vehicle) is not covered under the on-hook portion of the policy. This exposure is covered under the Tow-Truck Liability Policy. PRIME offers tow-truck liability with a limit of $1,000,000.00 per accident.

7. Does This Policy Provide for the Contents of the Repossessed Vehicle?

Contents of the repossessed vehicle can present a unique claim. The debtors can allege that all sorts of valuables were in the vehicle at the time of recovery, such as important documents and family heirlooms. Even a claim of a toy doll's birth certificate has been made. PRIME's policy will cover up to $10,000.00 for personal property.

8. Does This Policy Provide Coverage for Non-Owned Vehicles Such as Repossessed Vehicles that Are Being Driven Away from the Debtor's Residence or to the Storage Facility?

Insurance protection for the repossessed vehicle is important. The coverage must cover damages to the repossessed vehicle should it be wrecked. It should include protection for damages and personal injuries in the event the insured is determined to be at fault. PRIME's policy provides coverage for a $1,000,000.00.

9. Is this Policy a Garagekeepers' Legal Liability Policy, or a Direct Primary Policy?

A legal liability policy will not pay a claim if the insured storage facility is broken into and the stored vehicle is damaged or stolen. The policy will only pay for negligence of the recovery company. If the recovery company has a fenced-in area and is deemed to have done everything it was obligated to do, the policy will not provide coverage for the claim.

PRIME's garage keepers' policy is a direct primary policy. The policy will pay in the event of a break-in and will also pay for the negligence of the recovery agent. The limits of coverage is a $1,000,000.00 per claim.

10. Does this Policy Provide Coverage for the Insured's Tow Trucks? If "Yes", What Are the Limits of Liability?

Tow-truck insurance is the largest and most misrepresented of all the insurance policies that are purchased by a recovery agent. There are a lot of instances where the repossessor will obtain a simple towing policy through their local insurance agent. They may not answer all the questions that pertain to what they actually do. They will represent themselves as a towing company, not a repossession company. Should they have a claim involving a repossession, the insurance company will deny the claim because they will not insure repossessions or repossession activity.

11. Does the Policy Provide Coverage for the Repossessed Vehicle Should an Independent Contractor Wreck the Collateral?

The policy PRIME has acquired provides coverage for damage to the repossessed vehicle if caused by an independent contractor. The policy limit is $50,000. The policy does not provide coverage for the independent contractor for claims of wrongful repossession, breach of the peace, or allegations of assault and battery.

Workers' Compensation Insurance

A recovery company works for its clients as an independent contractor. Some of these agencies will hire other independent recovery agents to recover collateral for them. The fact is, there are a great many recovery companies who do not provide Workers' Compensation Insurance for their employees. They will use independent contractors to recover collateral for them. By using independent contractors, they do not have to pay Social Security, Federal Income Tax, Workers' Compensation, and Medicare payments. Since they have only a few employees, and use independent contractors, they can charge a lot less for their services, leaving the finance source at risk.

Should one of their independent contractors have an accident, they could make a claim against the finance company or bank to recover medical or disability payments for their injuries.

Workers' Compensation Insurance will vary from state to state. It is recommended that you contact your State Insurance Department and/or seek legal advice to determine the state's requirements.

How Do You Verify Workers' Compensation Insurance?

All states will issue a certificate of compliance which can be obtained from the recovery company.