Loss Payee

A loss payee is added to your policy when a third party has a financial stake in your insured property. The most common scenario for tree service companies involves financed equipment. If you take out a loan to buy a $120,000 bucket truck or a $60,000 stump grinder, the lender will require that they be listed as a loss payee on your inland marine or commercial auto policy. If the equipment is totaled, the insurance payout goes to the lender (up to the outstanding loan balance) rather than directly to you.

The loss payee designation protects the lender's collateral. Without it, you could collect the insurance proceeds and choose not to repay the loan, leaving the lender with neither the equipment nor the money. Most equipment financing agreements and commercial vehicle loans require loss payee status as a condition of the loan, and lenders will verify this by requesting a certificate of insurance.

There are different levels of loss payee protection. A standard loss payee simply receives the claim check. A "lender's loss payable" endorsement goes further — it protects the lender even if the insurer denies your claim due to fraud, misrepresentation, or a policy violation on your part. Lenders on high-value equipment often require the stronger lender's loss payable endorsement.

As a tree service owner, keep a list of every piece of financed equipment and the corresponding lender's loss payee requirements. When you pay off a loan, notify your agent so the loss payee can be removed. When you finance new equipment, add the lender immediately. Failing to list a required loss payee can put you in default on your loan agreement.