RSIG – Remove the Liability Before Removing the Vehicle

GUEST EDITORIAL

7 October 2019

Issue: Client has issued new policy explaining debtor redemption from an auction facility is no longer permitted; requiring the repossessor to take the vehicle back once it has left their care, custody and control so debtor can redeem from the repossessor’s facility.

Background: It is most insurance providers position that accepting the return of a vehicle once it has left the repossessor’s care, custody and control is inviting a claim and complaint against the repossession company. From a risk management perspective this is not a good business practice and exposes the repossession company to potentially costly litigation, increased overhead costs, a higher potential for insurance deductible expenses and potentially increased insurance rates or non-renewal if a pattern of claims emerges from this practice.

Recommendations: If a repossession company agrees to accept vehicles back, it is highly recommended they confirm with their insurance provider that they would have coverage for this activity. If so, there are several recommendations as they relate to the procedure that should be followed:

The repossession company with the help and assistance from their client should obtain at least 3 hold harmless agreements in order to make sure their interests are fully protected. Hold Harmless Agreements are often not enforced and insurance companies and your clients will likely want claims settled rather than going to court, but a strong hold harmless agreement should make each party think about their responsibility in these cases. Hold Harmless Agreements should be obtained from:

• The Client and Lienholder, if not the same.

• The Transporter who delivers the vehicle back to the repossessor’s secured facility.

o Transporters have been responsible for damage when loading/unloading and moving vehicles from one location to another.

o Some unethical transporters have driven vehicles for personal use and vandalized them for parts.

• The Auction from whom the vehicle is being returned.

o Auction employees have damaged vehicles being moved around their lots.

o Items have been removed from vehicles, stereos, speakers, tires swapped etc. while at auction.

o Auctions are subject to weather and “Acts of God” including wind, flood and hail – and many reject that garagekeepers coverage in order to reduce costs. A vehicle could be returned to you with hail damage that occurred while the vehicle was at the auction.

Before acceptance of the returned vehicle, the repossession company needs to perform a new detailed condition report of the vehicle and a detailed comparison between the original condition report. This would include needing to be aware if the vehicle runs – noting any issues, differences in mileage from the repossessor’s original condition report, noting if tires, stereo equipment, etc have been changed.

(The level of scrutiny at this point makes it imperative that the repossessor establish and maintain the upmost highest standards and business practices when the first condition report is completed. The often seen practice of being able to check good or fair across the board are no longer acceptable. The repossession office will have to have a clear set of standards, criteria and a method and policy of communicating that information to their clients. Condition reports are often subjective much in the same that “beauty is in the eye of the beholder”; what is considered good or fair to one person may not be the same to another.)

When a vehicle is returned to the repossessor’s location, it is imperative that the repossessor get a signature on the new condition report, a printed name of the transporter and it is highly recommended a photo of the transporter’s drivers license (or a picture of the photo ID from whom the vehicle is being released). When a repossessor releases a vehicle to a debtor, they obtain a copy of a photo ID – this practice should be followed whenever a vehicle is released or in this situation returns to the repossessor’s care, custody and control.

Auctions have historically made it a point when accepting vehicles into auction of marking them “Received, But Not Inspected”. This has been the auctions way of saying they agree the vehicle referenced on the form was delivered, but they are not making any note as to the condition it was received in. That stamp alone has often served as “Proof of Delivery” and has led to claims where a vehicle was damaged in transport or at the auction, but the repossessor being blamed and their client attempting to hold them financially responsible.

It is highly recommended that the repossession agent have a key available to them (either provided by the client or authorization and approval to make one themselves) for the unit. If the repossessor does not have a key, how are they supposed to be able to confirm the vehicle’s ability to run prior to the release to auction and when it is returned? Repossessors should always have a key to be able to verify the vehicles ability to run and its mileage (due to claims of conversion if a vehicle has unexplained, excessive mileage on it once the debtor gets it back) and inspect the vehicle for property; however upon taking a vehicle back it has gone through at least 2 other entities’ hands…twice. When the debtor picks up the unit with their key and then claims transmission damage, who are they going to blame? And how will it be determined where that damage occurred? (If the repossessor NEVER had a key, how are they to know if the transmission was shot during the initial repossession?)

One also cannot neglect to consider the potential risk and exposure associated with the additional debtor contact. An angry debtor could come to your lot to redeem the vehicle they should have gotten from the auction and there could be physical confrontation, injury to repossession agency staff etc. If the debtor is responsible for paying fees at the time of redemption and then doesn’t have all or enough of the money, if the repossessor refuses to let the debtor see their vehicle before trying to make them sign for it, if the debtor in anyway feels threatened or embarrassed etc. these are all scenarios from lawsuits when the repossessor and debtor make contact. Taking the vehicle back, presents these scenarios and potential claims. Whether or not there would be coverage could be determined on claim day and how the legal complaint is written; keep in mind also the contract you sign may obligate you to pay for these types of claims, regardless if your insurance policy has coverage or not.

There should also be a clear policy established addressing how long the repossessor will be expected to store the unit(s) returned to them. Vehicles left unredeemed or abandoned take up valuable space on a repossessor’s lot and have to remain secured at all times.

Summary: The repossession agency has to determine if they are able and willing to provide this additional level of detail and service to the client making this request. Rest assured if the current client making the demand is successful and the new policy of redemption only from the repossession office proves beneficial – other clients and lenders will begin to the make the same requirement and the potential liabilities, risks and exposures to the repossession agency increase dramatically. This is yet another demand for services that cause an increase in exposure to the repossession company, likely with little to no additional compensation* but could prove to be extremely costly.

*Please keep in mind that if there has been an agreement for additional compensation, it may not be enough to reimburse your deductible expenses or the increase in premium you may receive if your rates increase due to the increase in claims.

Quick Take-Aways:

• Legally binding strong hold harmless agreements from all involved parties, providing indemnification and defense for all related losses if a vehicle is taken back, not just physical damage to the vehicle.

• Extremely detailed condition report done at the time of initial repossession/storage, because it will be used as the basis for any damage claim if a vehicle is returned

• Extremely detailed condition report of the vehicle once it is returned, bringing attention to any new damage by comparison to the original report

• Clear policies and procedures about how to properly fill out a condition report so there is less confusion about what is “Minor Damage”, “Normal Wear and Tear”, “Good”, “Fair” etc.

• Repossession agencies should be getting keys for every repossession to protect against operability claims, personal property claims and claims of conversion for additional/excess mileage

Signature, Printed Name and Copy of ID of person from whom the vehicle is released and/or returned

• Clear understanding of how long the repossessor is to be responsible for the vehicle and procedures if left unredeemed.