Jane Dotson
The Uniform Commercial Code (UCC) insurance is a relatively modern invention that fills gaps in financing membership interests in real estate transactions. UCC insurance provides protection for lenders, purchasers, and legal professionals from the risks associated with collateralized financial transactions or the acquisition of personal property assets. However, the UCC contains a broad exception excluding insurance policies and rights under such policies from its coverage. This has led to litigation over the years, with some arguing that certain types of insurance policies are covered by Article 9 of the UCC. The applicability of UCC to insurance is a complex topic, and understanding its benefits is crucial for practitioners in the real estate industry.
| Characteristics | Values |
|---|---|
| UCC insurance | First introduced in 2001 by First American Title Insurance Company |
| Designed to protect lenders, purchasers, and legal professionals from the risks associated with collateralized financial transactions or the acquisition of personal property assets | |
| Covers transfers to the successor and assigns of the insured | |
| Applies to all types of Article 9 collateral under the UCC | |
| Provides an additional review of collateral descriptions in security agreements and precise legal names of entities for the UCC filing | |
| Covers the gap period between funding and the filing of the UCC to perfect the security interest | |
| UCC's treatment of insurance payments | UCC contains a broad exception excluding insurance policies and rights under such policies from the scope of its coverage |
| UCC Section 9-109(d)(8) states that Article 9 does not apply to "a transfer of interest in or an assignment of a claim under" an insurance policy | |
| One exception exists for assignments related to healthcare insurance receivables | |
| Death benefits under life insurance policies are contemplated by the UCC's exclusion | |
| UCC and business interruption insurance | Litigation has tested the scope of UCC's exclusion as it relates to payments under business interruption insurance policies |
| Some parties have successfully asserted that such payments are covered by Article 9 | |
| UCC lien search | A lender can conduct a UCC lien search to determine if any person has filed a UCC financing statement asserting rights under an insurance policy |
| UCC and real estate | Title insurance is prevalent in real estate transactions, but UCC insurance is not yet common |
| UCC insurance can provide benefits in real estate transactions involving the financing of membership interests |
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What You'll Learn
UCC insurance and real estate
The Uniform Commercial Code (UCC) insurance policies are a relatively modern invention, with the first policy being introduced in 2001. UCC insurance is designed to protect lenders and investors in real estate transactions. It covers the attachment, perfection, and priority of the secured party's interest in personal property collateral.
UCC insurance is particularly relevant when part of the purchased property is not real property. For example, it can insure personal property purchases under a buyer's UCC insurance policy. It also covers transfers to the successors and assigns of the insured.
Despite the benefits of UCC insurance, it is not as prevalent as title insurance in real estate transactions. This is partly due to a lack of understanding about UCC insurance among real estate practitioners. Many are not fully aware of its advantages, and pledges of membership interests are often accepted without requiring UCC insurance, creating a gap in insurance protection.
While title insurance specifically applies to real property, UCC insurance focuses on personal property and fills gaps in financing membership interests. UCC insurance provides an additional layer of protection by reviewing the collateral descriptions in security, just as multiple sets of eyes review mortgages and legal descriptions in real estate transactions.
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UCC insurance and business interruption insurance
The Uniform Commercial Code (UCC) does not treat all insurance types the same. While UCC insurance generally insures the attachment, perfection, and priority of security interests in personal property, it does not cover insurance policies and rights under such policies. This exclusion is outlined in UCC Section 9-109(d)(8), which states that Article 9 does not apply to "a transfer of interest in or an assignment of a claim under an insurance policy".
UCC insurance is typically utilised for transactions described in Article 9, "Secured Transactions", of the Uniform Commercial Code. It covers movable collateral, such as equipment or inventory, intellectual property, software, general intangibles, payment intangibles, and investment property. In addition, UCC insurance covers risks associated with the perfection of a security interest through the central filing system, such as the authorised execution of lien-granting documents and misindexed filings.
Business interruption insurance is a type of insurance that provides financial protection to businesses in the event of disruptions that cause a slowdown or halt in operations. It is particularly important for manufacturers or distributors, especially when operations are limited to a few locations. The question of whether the UCC's insurance exclusion applies to payments under a business interruption insurance policy has been the subject of litigation and debate.
Some court cases, such as In re Bell Fuel Corp. and Rouse, have concluded that payments under business interruption insurance policies are covered by Article 9 and fall within the scope of "general intangibles". These cases have asserted that insurance claims are considered "things of action" under common law, which are included in the UCC's definition of general intangibles. However, these decisions represent a minority view, and most case law upholds the broad exclusionary language of Section 9-109(d)(8), excluding all types of insurance except for assignments of healthcare receivables.
Lenders often require proof of personal property insurance and may request additional insurance as credit support. While UCC insurance and business interruption insurance serve different purposes, there may be instances where they intersect, depending on the specific circumstances and the jurisdiction involved. It is important to note that the applicability of UCC to business interruption insurance policies is still a complex and evolving area of law.
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UCC insurance and personal property
The Uniform Commercial Code (UCC) contains a broad exception that excludes insurance policies and rights under such policies from the scope of its coverage. However, UCC insurance is utilized for transactions described in Article 9, "Secured Transactions", of the Uniform Commercial Code.
UCC insurance generally insures the attachment, perfection, and priority of security interests in personal property. It covers movable collateral, such as equipment or inventory, intellectual property, software, general intangibles like contract rights, payment intangibles, and investment property. It also covers personal property affixed to real property, giving rise to an interest in real property.
UCC insurance policies can be categorized into two main types: the Lender's Policy and the Buyer's Policy. A Lender's Policy insures the attachment, perfection, and priority of a secured party's lien. On the other hand, a Buyer's Policy insures that personal property items are purchased free and clear of any liens.
In the context of personal property, UCC insurance can be relevant in situations where a lender seeks to protect its interests in loans secured by personal property. For example, a lender may obtain UCC insurance to ensure that its lien on personal property, such as inventory or equipment, is validly created and properly filed, giving them priority over third-party interests in the event of a borrower's default.
Additionally, UCC lien searches are an important aspect of UCC insurance and personal property. These searches are conducted to determine if any prior assignments or claims exist on the personal property in question. While UCC insurance primarily focuses on commercial transactions, it is worth noting that some states have codified laws regarding the assignment of insurance not covered by the UCC, which may include personal property insurance policies.
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UCC insurance and health-care insurance
The Uniform Commercial Code (UCC) contains a broad exception that excludes insurance policies and rights under such policies from the scope of its coverage. One exception exists with respect to assignments by or to a healthcare provider of a healthcare insurance receivable, but other types of insurance are excluded. For example, death benefits paid under a life insurance policy are contemplated by the UCC's exclusion.
UCC Section 9-109(d)(8) provides that Article 9 does not apply to "a transfer of interest in or an assignment of a claim under" an insurance policy. This means that a lender relying on key man life insurance cannot characterize payment as a proceed of property and would need to look to state law outside of the UCC.
There is ambiguity regarding whether the UCC's insurance exclusion applies to payments under a business interruption insurance policy. Some litigation has tested the scope of this exclusion, with some arguing that payments under a business interruption insurance policy are covered by Article 9.
In the context of healthcare insurance, the UCC in Ireland recommends that all international students have health insurance cover. This can be provided by their government under EU/EEA regulations or through purchased private medical insurance. For students requiring a visa, it is mandatory to submit private health insurance details with their visa application.
In other contexts, the UCC Medical Benefits program has been a topic of discussion, with some highlighting the high costs of the plans and the limited enrollment period of 90 days after taking a job in the UCC.
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UCC insurance and state law
The Uniform Commercial Code (UCC) insurance is a relatively modern invention, with the first UCC insurance policy created in 2001. UCC insurance provides an additional layer of protection for lenders, purchasers, and legal professionals involved in commercial transactions, particularly in the real estate sector.
UCC insurance covers risks associated with collateralized financial transactions and the acquisition of personal property assets. It protects lenders from mis-indexed UCCs, fraudulently filed terminations, and amendments. It also covers transfers to the successor and assigns of the insured. The policy applies to all types of Article 9 collateral under the UCC, including the gap period between funding and the filing of the UCC to perfect the security interest.
However, it is important to note that the UCC contains a broad exception excluding insurance policies and rights under such policies from its scope of coverage. UCC Section 9-109(d)(8) states that Article 9 does not apply to "a transfer of an interest in or an assignment of a claim under" an insurance policy. This exclusion applies to most types of insurance, except for health-care insurance receivables.
When it comes to state law, the UCC insurance exclusion means that assignments of insurance policies must arise under state law rather than the UCC. Some states have codified laws regarding the assignment of insurance not covered by the UCC, but most states rely on common law as developed through court decisions. As a result, the specific laws and requirements can vary depending on the jurisdiction.
In conclusion, while UCC insurance provides valuable protection in commercial transactions, it does not replace the need for a comprehensive understanding of state laws and regulations regarding insurance assignments. The interplay between UCC insurance and state law is complex, and seeking legal advice from professionals well-versed in this area is essential.
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Frequently asked questions
UCC insurance, or Uniform Commercial Code insurance, is a type of insurance that covers financial transactions or the acquisition of personal property assets. It is designed to protect lenders, purchasers, and legal professionals from risks associated with collateralized financial transactions.
Title insurance applies only to real property and chattels real, while UCC insurance covers title to personal property. Title insurance is also a more established concept, with the first title insurance company being formed in 1876, whereas the first UCC insurance policy was created in 2001.
UCC insurance covers transfers to the successor and assigns of the insured. It also applies to all types of Article 9 collateral under the UCC. Additionally, UCC insurance covers the gap period between funding and the filing of the UCC to perfect the security interest.
UCC insurance is primarily for lenders, purchasers, and legal professionals involved in commercial transactions or the acquisition of personal property assets.
UCC insurance contains an exclusion for insurance policies and rights under such policies. Specifically, UCC Section 9-109(d)(8) states that Article 9 does not apply to "a transfer of an interest in or an assignment of a claim under" an insurance policy. However, there is an exception for assignments by or to a healthcare provider of a healthcare insurance receivable.
