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 threat managers) are making improper requests of business debtors. I’ve mentioned what I’ve mentioned, and I stand by what I mentioned – until 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 just like this:

“One among 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 final legal responsibility coverage. How will we do that?”

Why is that this request being made by the financial institution in any respect? What potential 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 is no such thing as a 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 actually no symbiotic relationship between the events the place every requires the existence of the opposite occasion in an effort 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 kind of obligatory relationship exists, why is extra 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 protection 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 protection 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 extra insured standing.

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

In case 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 mistaken! 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 rivalry that financial institution attorneys and/or threat 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. Nevertheless, if cheap proof is supplied, I’ll reevaluate my stance.

I sit up for listening to from you.