1. Forms
2. CA
3. CA-26-01

What the form is

The Single Interest Automobile Physical Damage Insurance Policy (Individual Policy Form), often ISO form CA 26 01, is a specialized insurance coverage also known as Vendor's Single Interest (VSI) insurance. Its core purpose is to safeguard the financial stake of a lender—such as an auto dealership that finances its sales or a dedicated finance company—in a particular vehicle sold to a retail buyer under a financing agreement. This policy becomes active if the vehicle incurs physical damage or is stolen, and the buyer has not upheld their obligation to maintain the necessary primary auto insurance. It is critical to understand that this policy only covers the lender's outstanding financial interest (for example, the unpaid loan balance) and offers no coverage for the borrower's equity or personal interest in the vehicle. It is structured as a self-contained policy that applies specifically to one purchased vehicle.

Classes of business it applies to

This form is predominantly utilized by:

• Auto Dealerships: Particularly those offering in-house financing or operating under "buy-here, pay-here" models, as they maintain a financial interest in vehicles sold on credit.
• Financial Institutions: This includes banks, credit unions, and finance companies that issue auto loans. They employ this coverage to shield their loan collateral should a borrower default on their insurance responsibilities.
• Lenders: Any entity that provides funds with a vehicle serving as collateral.

Real-world example: An auto dealership sells a pre-owned vehicle to a customer who finances the purchase directly through the dealership. As the lender, the dealership might secure a Single Interest policy to cover its outstanding loan amount if the customer allows their own comprehensive and collision coverage to lapse and the car is subsequently totaled.

Special considerations

• Lender Protection Only: It is essential to recognize that this policy does not benefit the vehicle purchaser/borrower. If the vehicle is damaged, the policy compensates the lender. The borrower might still be liable for any remaining loan balance if the insurance payout is insufficient and receives no compensation for their lost vehicle or down payment from this specific policy.
• Triggering Coverage: Coverage typically applies when the retail purchaser has defaulted on their loan payments, and the named insured (the lender) has made reasonable attempts to repossess the automobile, particularly in instances of theft, conversion, embezzlement, or secretion.
• Cost Pass-Through: In certain states, lenders may be allowed to transfer the premium cost for this insurance to the borrower, despite the borrower not being an insured party under the policy. This practice can be a source of dispute and is regulated at the state level.
• Exclusions: These policies usually contain specific exclusions, for instance, for vehicles used as livery or public conveyances (e.g., taxis, ride-sharing services), unless specifically endorsed. An exclusion (often via an endorsement like CA 26 04) has been introduced for situations where the driver of the vehicle is logged into a transportation or delivery network platform.
• Policy Term: Single interest coverage is frequently written to expire concurrently with the associated finance or loan contract, with a maximum term often around 84 months.
• Regulatory Aspects: State laws can dictate the use of single interest insurance, including permissible charges and required disclosures to borrowers (e.g., North Carolina G.S. 58-57-100).

Real-world example: A bank extends a car loan, requiring the borrower to maintain comprehensive and collision insurance. If the borrower cancels their insurance and the car is subsequently totaled, the bank's Single Interest policy would activate to cover the outstanding loan balance, mitigating a loss for the bank. The borrower, however, would not receive any payout from this policy.

Key information for agents and underwriters

• Risk Assessment: The principal risk revolves around the borrower's probability of defaulting on their insurance and loan payment obligations. Underwriters may evaluate the lender's collection and repossession procedures.
• Pricing: Premiums are generally determined by the lender's historical loss experience, the types of vehicles financed (new versus used), the terms of the loans, and the geographical location.
• Coverage Gaps: This policy does not extend to liability, medical payments, or uninsured/underinsured motorist coverage for the borrower. It is strictly for physical damage to the lender's interest in the collateral.
• Master vs. Individual Policies: While CA 26 01 is designed for individual policies (one vehicle per policy), the related CA 26 02 is a "Finance Master Policy Form." This is used when a lender wishes to cover their entire portfolio of financed vehicles under a single master policy, which can be more administratively efficient for larger lenders.
• Deductibles: Endorsements such as CA 26 05 can be used to add a deductible to the physical damage coverages provided by these single interest policies.
• Alternative to CPI: Vendor's Single Interest (VSI) insurance is often positioned as a more streamlined and potentially cost-effective alternative to traditional Collateral Protection Insurance (CPI), as it can obviate the need for continuous insurance tracking by the lender.
• Additional Coverages: Some VSI policies can be expanded to include protections such as "skip" coverage (if the borrower and vehicle cannot be located), confiscation coverage (if the vehicle is seized by public authorities), and coverage for errors or omissions in the filing of liens.