What is UCC Insurance?

John Lister
John Lister

UCC insurance covers security interests in personal property. This is any property other than land and buildings. The insurance covers a wide range of potential risks involved in having and executing the security interests.

Man climbing a rope
Man climbing a rope

The name UCC insurance comes from the Uniform Commercial Code, which is the compiled body of law that affects commercial transactions in all American states. The aim of the code is to ensure consistency and avoid confusion in commercial deals that involve companies or property in more than one state. The name reflects the fact that the insurance is designed to take account of changes made in 2001 to the code, which affect the manner in which security interests are governed.

To have security interest means to have a claim on somebody'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 needed to make up for a shortfall in loan and interest repayments. 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 stock. It doesn't cover real property. This is land plus any attachments to the land, such as roads or buildings.

UCC insurance is designed to cover the risks in three areas of owning a security interest. Attachment is the original process by which the lender and borrower agree that the property shall serve as security. Perfection is a legal term for any action designed to maintain and protect this interest, such as adding it to a formal register.

The third risk involves priority, which addresses the issue of who gets possession of a piece of personal property if multiple lenders try to carry out their claim on it. This can 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.

As well as offering policies to lenders, some UCC insurers offer policies to companies planning to buy an asset. In this scenario, the policy insures against the risk that there will be a security interest in the property that means the seller did not have the legal right to pass on the asset. This form of UCC insurance is usually known as a buyer's policy.

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