Implications of Finance Arrangements on Heavy Vehicle Insurance

As business owners, you would be aware that finance on plant and equipment is a necessary part of doing business – as too is insurance.

The majority of finance contracts are straight forward in that the ownership of the vehicle remains with the transport operator, with the bank or finance company simply having an interest in making sure that the vehicle is insured so that their exposure to financial loss is covered should something happen to the vehicle.  For this reason, they are often noted as an Interested Party on the insurance policy until such time as the finance contract is paid out in full.

Recently we have become aware of a different type of finance arrangement being offered by a number of firms where the ownership of the vehicle rests with the Financier, while the operation and repairs and maintenance etc are the responsibility of the Operator.  The Agreement with the Finance Company is noted as a rental agreement.  The Operator then continues to make their repayments as they normally would to the finance company and when the finance/rental period ends and the loan is fully extinguished, the ownership of the vehicle may revert to the Operator.  So other than the legal ownership of the vehicle during the period when it is under finance and the fact it is a “rental” agreement, there is no difference between this and a standard finance agreement.

Clearly this type of arrangement must have its’ benefits for certain operators which is why they go down this path, but there can be insurance ramifications if the vehicle is written off and the Insurer is not aware of the financial arrangements that are in place on the vehicle.  The reason for this is that for an Insured to be paid out on a vehicle, they need to establish that there is an insurable interest in the vehicle, which if they don’t “own” the vehicle, they may not have.  And as the Agreement between the operator and the Financier is noted as a rental agreement, it could be viewed as no different to any other form of rental vehicle.

Should such a finance contract exist in your business, it is important to notify us in order that we can have the policy properly structured to protect your interests in the vehicle in the event of a claim.

If you have any queries regarding this and would like to discuss it in more detail, please contact your Account Manager.