1. Forms
2. CA
3. CA-26-05

What the form is

The CA 26 05, titled "Single Interest Deductibles," is an insurance policy endorsement. It is designed to be used with Single Interest Automobile Physical Damage insurance policies, such as the CA 26 01 (Individual Policy Form) or CA 26 02 (Finance Master Policy Form). The core function of this endorsement is to allow for the scheduling of specific deductible amounts that apply to various physical damage coverages like comprehensive, collision, fire, and theft. These deductibles pertain specifically to the financial interest of a lender (e.g., a finance company or bank) in a financed or leased vehicle. In situations where a borrower defaults on their loan and the vehicle is damaged, or if the borrower fails to maintain the necessary insurance coverage and damage occurs, this endorsement clarifies the portion of the loss that the lender would need to cover before the Single Interest insurance policy responds.

Classes of business it applies to

This endorsement is pertinent to businesses involved in the financing or leasing of automobiles. This includes entities such as:

• Banks
• Credit unions
• Finance companies
• Automobile dealerships that retain a financial interest in the vehicles they have sold or leased.

It is exclusively used with Single Interest policies, which are structured to protect only the lender's investment in the vehicle, not the borrower's equity or interest. For instance, if an auto dealership provides financing for a customer's vehicle purchase and the financing agreement stipulates that the customer must maintain physical damage insurance but they let it lapse, or if the customer defaults on their loan payments and the car is subsequently damaged, the dealership’s Single Interest policy, amended by the CA 26 05 endorsement, would specify the deductible amount applicable to the dealership's claim for that damage.

Special considerations

The CA 26 05 endorsement offers flexibility by allowing different deductible amounts to be set for various types of coverage; for example, a different deductible might apply for comprehensive damage than for collision damage, or for losses due to fire and theft. It is crucial that the schedule within the endorsement clearly specifies the exact deductible amount applicable to each distinct coverage type to prevent ambiguity. This form is relevant only when a Single Interest Automobile Physical Damage policy is active and does not apply to standard auto insurance policies that provide coverage for both the borrower's and the lender's interests (which typically utilize a loss payable clause to protect the lender). The terms of the Single Interest coverage, including the deductibles detailed in CA 26 05, are often governed by the conditions laid out in the financing agreement between the lender and the borrower.

Key information for agents and underwriters

• Risk Assessment: The choice of deductible levels directly impacts the premium for the Single Interest coverage. Opting for higher deductibles typically results in lower premiums for the lender but also means the lender assumes a greater portion of the financial risk if a loss occurs. Underwriters evaluate the lender's overall risk management strategies and the characteristics of the vehicles being financed.
• Clarity is Crucial: Insurance agents must ensure that the schedule on the CA 26 05 endorsement is meticulously completed, clearly indicating which deductible amount corresponds to each specific coverage (e.g., $100 for comprehensive, $250 for collision). This precision is vital to avert disputes or misunderstandings when a claim is filed.
• Coverage Gaps: It's important to remember that this endorsement is part of a "single interest" policy, which means its protection extends only to the named insured—the lender. The borrower receives no coverage under this policy. This distinction should be clearly communicated to and understood by all involved parties.
• Pricing: The premium for the Single Interest policy will be influenced by the deductible levels selected and specified on the CA 26 05.
• Underwriting Guidelines: When underwriting and determining the price for a Single Interest policy, underwriters will take into account the lender's past loss history, the nature of the portfolio of vehicles financed (including their types and values), and the specific deductible levels chosen via the CA 26 05. This endorsement provides a tool for tailoring the lender's retained risk.