TTheheUUtahtah BBankeranker The Official Publication of the Utah Bankers Association

IINSIDE:NSIDE: UBA’s Annual Ag Outlook Page 8 Getting Out Front on Financial Education Page 11

Issue 1 2008 FEATURE ARTICLE Accord Insurance Certificates: Does Your Borrower Really Have Coverage?

hen extending real 2003 version of the forms, but ACCORD regards estate secured these forms as obsolete and it is uncertain loans, banks normally whether they remain as approved forms under require evidence that state insurance regulatory laws. To protect the borrower has properly themselves, prudent banks should refuse to insured the buildings and other improvements accept the 2006 versions of the ACCORD Form against loss by fi re or other casualties. Banks 28 and ACCORD Form 27 and, instead, should properly view the insurance coverage as a require as proof of property insurance, one of material part of the overall security for the the following: loan. Since the insurance policy itself is often not available at closing, banks customarily rely • A certifi ed copy of the full insurance policy; upon certifi cates of insurance issued on forms • A copy of the declarations page from the promulgated by the Association for Coopera- policy, plus a loss payee endorsement nam- tive Operations Research and Development, provide the bank with written notice in the ing the bank as loss payee if the bank is better known in the banking community as event that the owner cancelled the policy prior not named in the policy (standard mortgage ACCORD. to the expiration date and (b) the certifi cate holder’s clause of ISO Form CP 00 10 “Build- ACCORD is a non-profi t insurance organization conveyed all the rights and privileges afforded ing and Personal Property Coverage” or ISO primarily comprised of insurance companies. under the policy, which allowed the bank to Form CP 12 18 “Loss Payable Provisions,” or For many years, bankers have relied on and rely on the certifi cate. The revised ACCORD their equivalent. Note: If using ISO Form CP insurance brokers have utilized forms promul- Form 28, however, states that the “issuing 12 18, “Lender’s Loss Payable” item must be gated by ACCORD as reliable proof that: insurer” is under no obligation or liability to selected.); or mail a written notice of the cancellation to the • The specifi ed insurance coverage is in effect bank named in the policy and further provides • The 2003 version of the ACCORD Form 28 as of the date of the certifi cate; that the evidence of insurance is “a matter of or ACCORD Form 27, as applicable (the date at the left footer of the form should read • The borrower has in force the types of in- information only and confers no rights” for 2003/10 or a prior date). surance coverages and required amounts of the “additional interest” on the policy, which such insurance; would likely include the lender. Until an acceptable compromise between AC- CORD, lenders, insurers and insurance brokers • The bank has an insurable interest in the real Banks are understandably concerned about is reached, banks must remain cognizant of the estate improvements; these revisions, and, in fact, the Mortgage Banker’s Association has openly criticized the limitations of the 2006 versions of the ACCORD • The insurer will provide the bank at least revisions, and Freddie Mac has said that it will Form 28 and ACCORD Form 27 when evaluating 30 days prior written notice of any policy not accept the new ACCORD Form 28. In an insurance coverage for its collateral. cancellation. attempt to resolve the competing concerns Brian D. Cunningham is a partner with the Salt Lake City Banks have typically accepted the ACCORD between the fi nancial services and insurance offi ce of Snell & Wilmer L.L.P. His practice is concentrated Form 27 as evidence of insurance in residential industries, representatives of ACCORD, lenders, in banking law, secured lending, letters of credit and real estate transactions and the ACCORD Form insurers and other affected parties are meeting payment systems, general commercial and consumer fi nance, and creditors’ rights. Brian can be contacted at to discuss the revisions, the appropriate scope 28 as similar evidence in commercial real estate [email protected] or 801-257-1954. transactions. of the ACCORD forms, and the allocation of risk between banks and insurers. To date, no James H. Jones is an associate with the Salt Lake City offi ce In July 2006, ACCORD revised its Forms 27 resolution has occurred. of Snell & Wilmer L.L.P. His practice is concentrated in and 28 to remove the protections that banks real estate and commercial fi nance, including construction had relied on in making their loans. Specifi - In the meantime, Banks are struggling to fi nd lending, asset-based lending, mezzanine lending, cally, prior to the 2006 revisions, the ACCORD alternatives to relying upon the 2006 versions loan participations and syndications, workouts, and Form 28 (known as the 2003 form) provided, of the ACCORD Form 28 and ACCORD Form 27. reorganizations. James can be contacted at jjones@swlaw. among other things, that (a) the insurer would Some banks are still attempting to require the com or 801-257-1921.

10 UTAH BANKERS ASSOCIATION ISSUE 1 2008