Banks Ought to NOT be Asking for Further Insured Standing

We welcome again to the Academy Journal Christopher Boggs, Chief Marketing consultant with Boggs Threat & Insurance coverage Consulting.

Banks (nicely, their attorneys or danger managers) are making improper requests of business debtors. I’ve mentioned what I’ve mentioned, and I stand by what I mentioned – except somebody can present proof on the contrary.

What leads me to this accusation? Easy, a query from brokers that’s changing into more and more frequent, which reads one thing much like this:

“Certainly one of our insureds has taken out a enterprise mortgage, and the financial institution is requiring our consumer to call the financial institution as an extra insured on the final legal responsibility coverage. How can we do that?”

Why is that this request being made by the financial institution in any respect? What doable publicity does the financial institution have because of the operations or actions of the borrower?

A mortgage is an arms-length transaction between two completely unrelated entities, every working for its personal self-interest.

There isn’t any contractual relationship between the events the place the borrower has agreed to do something on behalf of or for the good thing about the lender. And there may be definitely no symbiotic relationship between the events the place every requires the existence of the opposite occasion in an effort to exist themselves.

Further insured standing is critical solely when there may be both a contractual or symbiotic relationship between the events. A lender/borrower relationship is neither contractual nor symbiotic.

So, if neither sort of essential relationship exists, why is further insured standing being required? There could also be a few prospects:

• The lender is investigating and approving the processes and procedures of the debtors; or
• The lender is guaranteeing the security and merchantability of the borrower’s product.

It’s uncertain that the lender has the experience and even authority to analyze and approve enterprise strategies, processes and procedures, or the security of the borrower. There are different entities a lot better suited and created for these functions.

Thus, the financial institution has NO legal responsibility publicity from the merchandise, companies or operations of the borrower. When there may be NO legal responsibility publicity, there isn’t a want for added insured standing.

Finally, there isn’t a relationship or publicity between a lender and borrower that requires further insured standing. This requirement is wholly improper and unnecessarily problematic.

In the event you disagree, please give me viable causes or relevant case regulation. However even utilizing case regulation is problematic. Case regulation is case particular, and making a broad stroke requirement primarily based on a really particular set of circumstances is improper! If case regulation is used to assist this requirement, cite the case so it may be reviewed.

Till readers present cheap proof in any other case, I stand behind my competition that financial institution attorneys and/or danger managers are unreasonable, incorrect and hardheaded of their requirement {that a} borrower title them as an extra insured to qualify for a financial institution mortgage. Nonetheless, if cheap proof is offered, I’ll reevaluate my stance.

I stay up for listening to from you.