Can Lenders Legally Withhold the processing of an escrow payment over not possessing evidence of insurance?

A bartender (also known as a barkeep, barman, barmaid, bar chef, tapster, mixologist, alcohol server, flairman or an alcohol chef) is a person who formulates and serves alcoholic, or soft drink, beverages behind the bar. However, throughout time, bartenders have also functioned as dispensers of knowledge, taking on the roles of therapists, advocates, professors and philosophers.

It is for this reason in which my column and blog is titled ‘Insurance Bartender’. I plan to use this platform to dispense advice and take requests from ‘patrons’ on what issues I should tackle in my next column or post. I will also preview the topic(s) to be covered in the next edition of insurance bartender in a section titled ‘On Tap’. As always, please don’t hesitate to email me at [email protected] or call 608-256-4429 to submit a question or suggestion.

As previewed in my last column's “On Tap” section, Megan asked, “Can lenders legally withhold the processing of an escrow payment over not possessing evidence of insurance?”

 The scenario which yielded the above question arose from a financial institution not accepting the actual policy as an adequate form of insurance, and stating that if they didn’t receive proper evidence of insurance (certificate of insurance to meet their standards) they would withhold the insured’s escrow payment.

 After receiving the question, I immediately questioned how the policy could not be adequate evidence of insurance as its even better than a certificate. I began to conduct some research to determine if the financial institution has any legal basis to withhold a payment from escrow. After several hours of research, I couldn’t find anything that would allow the lender to withhold payments from escrow accounts based on inadequate evidence of insurance. 

I conferred with IIAW’s Legal Counsel, Josh Johanningmeier, on my findings. He indicated that his research failed to produce anything that would contradict my findings. He said the consensus in his firm is that it could be governed by the contract with the lender (mortgage, loan doc, etc.), but that there is no law prescribing that authority to the financial institution. The insured would need to review their contract with their lender to see if it proscribes such authority to the financial institution.

Agencies should continue to tread lightly as it pertains to issuing certificates of insurance and use the document(s) prepared by legal counsel in pushing back against illegal requests. If you ever have any questions as it relates to the law or your agencies workflow as it relates to issuing certificates of insurance, please don't hesitate to contact me.

ON TAP

In the next edition of Insurance Bartender, I will take a shot at tackling a question from Tina in Wausau on how insurance agencies can successfully implement a fee for service strategy when facilitating enrollment in an individual health insurance product or marketplace. I wrote on this topic several years ago and will update and dispense the latest important information.