UCC Article 9 Insurance Coverage Requirements - Lender Demanding Additional Policy Details

This is correct. UCC 9-207 covers a secured party's duties regarding collateral but insurance requirements are usually contractual. However, you can require 'reasonable' insurance to protect your security interest.

Wait, so if the UCC doesn't specify insurance amounts, how do we know what's 'reasonable'? I've seen lenders require full replacement value plus 20% buffer. Is that overreach?

Exactly right. I've seen cases where lenders required $500K coverage on $200K equipment and courts found that unreasonable. The insurance should match your actual secured interest.

What about requiring specific insurance companies or A-rated carriers? Can secured parties demand that level of detail?

Generally yes, you can require financially stable insurers since that protects your interest. But you can't require a specific company that happens to give you kickbacks or something like that.

That's smart. I've seen insurance claims denied because the loss payee wasn't exactly how we were named in the UCC filing. These details matter more than people think.

How does that document checking tool work? Do you have to upload multiple files or does it pull UCC records automatically?

You just upload the PDFs - security agreement, insurance policy, UCC-1 if you want to triple-check everything aligns. It highlights any discrepancies between debtor names, collateral descriptions, coverage amounts vs loan amounts. Pretty straightforward.

True, but courts look at industry standards too. If everyone in equipment financing requires replacement value plus 10-20%, that's probably reasonable even if it exceeds the loan amount.

What about self-insurance? Can borrowers opt out of commercial insurance if they have sufficient assets?

That's a great question. The UCC doesn't address depreciation scenarios directly. Your security agreement language will be crucial here. If it says 'replacement value' without specifying original vs current, you might have an argument for current value.

We had this exact situation. Court said insurance should protect the secured party's actual interest, which is the outstanding loan balance, not original equipment value. But check your state law - some have specific rules.

Thanks, that's helpful. Our loan balance is $140K so current equipment value of $120K might not be sufficient coverage. This is getting complicated.

Proceeds issues are the worst. Had a total loss situation where insurance paid $80K but we were owed $100K. Borrower argued they didn't owe the difference because insurance was 'adequate.' Court disagreed - loan balance is loan balance.

That's why gap insurance exists in vehicle financing. Equipment loans should consider similar coverage for the difference between insurance proceeds and loan balance.

lol 'pound sand' - I'm stealing that for my next borrower dispute. But seriously, industry standards do matter for the reasonableness test.

What are typical requirements? I'm new to this area and don't want to over-require or under-protect our interests.

Generally replacement value or loan balance plus 10-20%, whichever is higher. Loss payee clause naming you as secured party. A-rated carrier or equivalent financial strength. That's pretty standard.

This is the most accurate explanation I've seen. The UCC gives you rights to proceeds but doesn't mandate specific coverage levels. That's all security agreement territory.

So if we don't specify insurance requirements in our security agreement, we can't demand them later under Article 9?

Correct. You might have some rights under 9-207 to require reasonable care of collateral, but specific insurance terms need to be in your security agreement upfront.

Insurance gaps are terrifying. How far back does that checking go? Can it catch lapses in coverage history or just current policy status?

It analyzes whatever documents you upload, so if you have historical policies you can check for gaps. But it's not pulling live insurance data - just verifying consistency between your uploaded documents.

Smart approach. Document consistency is huge in insurance claims. Good luck with the refinancing!

Keep us posted on how this resolves. These insurance disputes are becoming more common and it helps to know what strategies work.

Will do. Appreciate all the insights from everyone. This forum is invaluable for working through these UCC issues.

Your requirements sound totally reasonable and industry-standard. I've seen lenders get into trouble when they require coverage amounts that are 2-3x the equipment value, but replacement value with proper loss payee clauses is basic secured lending practice. The attorney is probably just trying to save their client some premium dollars. Stand your ground - you have both contractual rights and UCC backing for reasonable insurance requirements.

Absolutely agree with @Amaya Watson - your requirements are textbook reasonable. I d'also suggest documenting industry standards in your file in case this escalates. Having comparable lender requirements on record strengthens your position that replacement value coverage isn t'overreach. The borrower s'attorney is likely testing boundaries to see if you ll'cave on premiums.