Secured lenders often look to the borrower's or
guarantor's rights under insurance policies to improve their
collateral position. Obtaining a collateral interest in a business
interruption insurance policy may protect a lender who is dependent
upon the ongoing cash flow of its borrower for debt service.
Obtaining an assignment of an interest in a life insurance policy
of the borrower's owner or a principal guarantor protects the
lender against economic effect of the sudden loss of a member of
the borrower's team essential to its success.
Despite its importance to many commercial loan transactions, the
law governing lien interests in insurance is non-uniform. Since
1945, matters relating to insurance have been left to each
state.1 More importantly, all but two states have
excluded liens in insurance policies from Article 9 of the Uniform
Commercial Code ("UCC").2 Because of this
exclusion, concepts of creation, perfection3 and
priority of liens taken by lenders in
