Banks Ought to NOT be Asking for Extra Insured Standing

We welcome again to the Academy Journal Christopher Boggs, Chief Guide with Boggs Danger & Insurance coverage Consulting.

Banks (properly, their attorneys or danger managers) are making improper requests of economic debtors. I’ve stated what I’ve stated, and I stand by what I stated – 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 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 overall legal responsibility coverage. How will 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 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 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 get together 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 sort of obligatory relationship exists, why is extra 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 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, providers or operations of the borrower. When there may be NO legal responsibility publicity, there is no such thing as a want for added insured standing.

In the end, there is no such thing as a relationship or publicity between a lender and borrower that requires extra insured standing. This requirement is wholly improper and unnecessarily problematic.

In the event 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 unsuitable! If case legislation is used to help this requirement, cite the case so it may be reviewed.

Till readers present affordable 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 a further insured to qualify for a financial institution mortgage. Nevertheless, if affordable proof is offered, I’ll reevaluate my stance.

I sit up for listening to from you.