When choosing a collateral recovery agency, lenders should know and understand the types of insurance coverages specific to this industry.
Repossession insurance consists of insurance coverage that indemnifies the repossessor from for liability. Collateral recovery agents should have this insurance in case of accidents, damage, or losses in regard to recovering collateral for any specific lender (except for intentional torts) and indemnifies the lender from liability for the unauthorized acts of a specific repossessor. Repossession insurance excludes intentional actions caused by intentional acts of injury and damage caused by intentional acts, unless requested by that specific lender.
For lenders selecting a recovery agent, this is perhaps the most basic and most important type of insurance to check. In the event that the recovery agent is involved in an accident while performing his duties, this type of insurance is designed to protect the involved parties from liability. It is critical for lenders to be knowledgeable regarding possible liability and how to ensure protection when engaging in a recovery.
Wrongful Repossession Insurance
Wrongful repossession can play out in one of two different scenarios. In one instance, property may have been repossessed after payments had been made current. In the other, property that has been repossessed after it was paid current and repossessed anyway, or the recovery agent might mistakenly take the wrong property. In the first scenario, repossession-specific insurance would be excluded if the lender in that case had not called off the assignment in writing. In the second instance, the lender cannot be held liable if a repossessor picks up the wrong property not assigned by the lender.
Many recovery agents protect themselves and their clients by carrying this type of coverage. An instance in which this repossession specific insurance proved valuable was in Atlanta in 1997. A recovery agency was hired by a credit union to recover a vehicle, and after locating the vehicle at the home of the owner's parents, the recovery agency attempted repossession. While checking the vehicle's identification number, one of two employees of the recovery agency was checking the vehicle's identification number when he was confronted by the debtor's father, who came out of the his house "visibly upset" and "yelling for the agent to get off of his property." The two employees of the agency drove away in the wrecker, leaving the vehicle in the carport.
In a second attempt to repossess the vehicle, the employees later drove the wrecker up the driveway of the home. When one employee exited the wrecker, the father again came out of the house, started screaming, and demanded that the employee give his name. At this point, the employee said he informed the father he was leaving and returned to the wrecker.
The father followed and began beating on the window of the wrecker window with a portable phone. As the wrecker exited the driveway, the father suffered a fatal heart attack. The debtor and the father's surviving spouse sued the credit union, the recovery agency and the two employees for wrongful repossession and wrongful death.
The court decided that is was within the obligation of the wrongful repossession and the repossessor's insurance provider to pay all damages assessed by the courts, as well as the credit union's defense costs.
Aggregate Vehicle Liability Insurance
If a repossessor has an aggregate policy for $3 million, and that policy covers 30 separate repossessors, one or two of them may lose a total of $3 million, then there is no money left, and the rest of the repossessors have nothing left in that pool of in coverage.
Most professional repossessors will carry a large enough policy sufficient to cover all their employees. It's also important to realize that an enormous policy would be cost-prohibitive to everyone involved. But a lender should be wary if the agent carries a $1-million policy and has dozens of employees.
Other types of insurance include:
* On-hook coverage protects the repossessor and lender from losses that occur in connection with a repossessor's truck, such as if a car detaches and causes damage or is damaged itself.
* Storage lot coverage, also known as a garage keepers coverage protects repossessors and lenders from damage that may occur on a storage lot. Common things that this type of insurance protects against are fire, theft, vandalism, and collision and in most cases wind, hail and flood.
* Debtors personal effects coverage is important because as the lender is ultimately responsible for its recovery agent (repossessor) protecting and inventorying the debtor's personal property. Personal effects coverage should normally range between $2,000 and $30,000, depending upon the amount of business collateral the recovery agent does repossess or stores. The reason for such high coverage is that it is improbable that the contents of the vehicle repossessed would normally be items of great value therefore the recommended maximum is only $30,000.
* Worker's Compensation Insurance protects the employees of the recovery agency in the event of an injury. Lenders are next in line for being named in lawsuits behind the owners of a recovery agency when employees of that recovery agency sue for on-the-job injuries. It would be wise for lenders to require workers compensation for all employees. Independent contractors are not considered employees and are typically not covered. Lenders can protect themselves as much as possible by knowing whether or not recovery agents are recognized as independent agents/contractors or employees. Lenders should check their local state laws to find out information on laws regarding independent contractors.
* General liability insurance comes in two formats; individual or group. Individual policies have one insured party. Group policies, on the other hand, may cover 100 to 300 individuals. Similar to aggregate vehicle liability insurance, the question is whether the group policy is generous enough to truly cover the entire group.
Major lenders require additional insured status, meaning they get part of the insurance limits if a repossessor and lender get sued together, which is typically the case. This automatically gives the lender half of the coverage.
Lenders and repossession companies should be knowledgeable about their coverage and vigilant where aggregates are concerned.
Gary Rogers is the insurance committee chairman of the American Recovery Association and Jim Deason is program manager of Recovery First Insurance and Bonds.