Banks Ought to NOT be Asking for Extra Insured Standing

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

Banks (effectively, 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 turning into more and more frequent, which reads one thing much like this:

“One in every of our insureds has taken out a enterprise mortgage, and the financial institution is requiring our consumer to call the financial institution as a further insured on the overall legal responsibility coverage. How will we do that?”

Why is that this request being made by the financial institution in any respect? What attainable publicity does the financial institution have on account 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 a contractual relationship between the events the place the borrower has agreed to do something on behalf of or for the advantage of the lender. And there may be definitely no symbiotic relationship between the events the place every requires the existence of the opposite social gathering with a purpose to exist themselves.

Extra insured standing is important 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 obligatory relationship exists, why is further insured standing being required? There could also be a few potentialities:

• 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 research and approve enterprise strategies, processes and procedures, or the security of the borrower. There are different entities significantly 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 any want for added insured standing.

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

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

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

I look ahead to listening to from you.