1. Forms
2. CA
3. CA-26-02

What the Form Is

The CA 26 02, titled "Single Interest Automobile Physical Damage Insurance Policy (Finance Master Policy Form)", is an insurance policy form that provides physical damage coverage for a lender's or seller's (such as an auto dealer's) interest in financed vehicles. This 'single interest' means it protects only the financial interest of the named insured (the lender/seller) if a financed vehicle is damaged or destroyed and the borrower's own insurance is insufficient or has lapsed, or if the borrower defaults on the loan. Unlike standard auto physical damage coverage, it does not cover the borrower's equity in the vehicle. This specific form is a "Finance Master Policy Form," designed to cover multiple financed automobiles under a single policy, typically for an auto dealer who finances numerous vehicles.

Classes of Business It Applies To

This form is primarily used by businesses that finance the sale of automobiles and retain a security interest in those vehicles. Common users include:

• Auto Dealers: Dealerships that offer in-house financing for vehicle purchases. For example, if "Paula's Pre-Owned Autos" finances a car for a customer, they can use the CA 26 02 to protect their outstanding loan balance if the car is wrecked and the customer is uninsured.
• Financial Institutions: Banks, credit unions, and finance companies that provide auto loans and want to protect their collateral.

It applies when the seller or lender wants to ensure their financial stake in a vehicle is protected against physical loss or damage when the retail purchaser is responsible for such loss and may not have adequate insurance.

Special Considerations

• Single Interest Only: It's crucial to understand that this policy protects only the lender's interest (the outstanding loan balance). The borrower receives no direct financial benefit from this policy in the event of a loss.
• Master Policy: As a "Finance Master Policy Form," it is designed for entities like auto dealers who have a portfolio of financed vehicles, allowing them to cover multiple interests under one overarching policy rather than individual policies for each financed auto.
• Not a Substitute for Borrower's Insurance: This coverage is not intended to replace the borrower's own comprehensive and collision insurance. It typically comes into play if the borrower fails to maintain the required insurance.
• Cost Allocation: In some jurisdictions, the lender may be permitted to pass the premium cost for this coverage on to the borrower as part of the financing agreement.
• Policy Term: The coverage under this policy for a specific financed auto usually aligns with the term of the loan or finance contract.

Key Information for Agents and Underwriters

• Risk Assessment: Underwriters should evaluate the lender's (e.g., auto dealer's) loan origination and servicing practices, including their requirements for borrowers to maintain primary insurance and their procedures for tracking insurance coverage. The quality of the loan portfolio will be a significant rating factor.
• Coverage Scope: This policy provides physical damage coverage (comprehensive and collision) for the lender's interest. It is important to clearly define what constitutes a covered loss and how the lender's interest will be valued.
• Pricing: Premiums will likely be based on the number of vehicles financed, the average amount financed, the types of vehicles, the geographic territory, and the lender's loss history.
• Exclusions: Standard physical damage exclusions will apply. Endorsement CA 26 04 can be used to exclude coverage for vehicles used for public or livery passenger conveyance or on-demand delivery services.
• Claims Handling: Claims are paid to the named insured (the lender/seller) to cover their outstanding financial interest after a covered loss.
• Regulatory Environment: Agents and underwriters should be aware of state-specific regulations regarding single interest insurance and the permissibility of charging the premium to the borrower.