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UCC insurance covers security interests in personal property, excluding real estate, and is designed to cover risks involved in owning a security interest, including attachment, perfection, and priority. It is named after the Uniform Commercial Code and can also be used by companies purchasing assets.
UCC insurance covers security interests in personal property. This is any property other than land and buildings. Insurance covers a wide range of potential risks involved in having and running security interests.
The insurance name UCC comes from the Uniform Commercial Code, which is the compiled body of law affecting business transactions in all US states. The purpose of the code is to ensure consistency and avoid confusion in business agreements involving businesses or property in more than one state. The name reflects the fact that the insurance is designed to take into account changes made in 2001 to the code, which affect the way security interests are governed.
Having a security interest means having a claim on someone’s property as part of a loan agreement. The property thus secures the lender’s claim; The lender will theoretically be able to take possession of the property if necessary to make up a shortfall in loan and interest payments. In practice, there are often legal disputes, particularly when more than one lender has a security interest in the same property.
Personal property can cover a wide range of assets, including intangible assets, such as the right to a trademark, or financial assets such as shares. It does not cover real estate. This is land plus any attachments to the land, such as roads or buildings.
UCC insurance is designed to cover risks in three areas of owning a security interest. The attachment is the original process by which the lender and the borrower agree that the property will serve as collateral. Perfection is a legal term for any action designed to maintain and protect this interest, such as adding it to a formal record.
The third risk involves priority, which addresses the question of who gets possession of personal property if multiple lenders try to enforce their claim on it. This may depend on the respective parties having followed legal procedures. In effect, UCC insurance is a form of liability insurance designed to cover the risk of procedural errors.
In addition to offering policies to lenders, some UCC insurers offer policies to companies planning to purchase an asset. In this scenario, the policy insures against the risk that there is a security interest in the property, meaning that the seller did not have the legal right to transfer the asset. This form of UCC insurance is generally known as a buyer’s policy.
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