The U.S. Tenth Circuit Court of Appeals upheld a dismissal for failure to state a claim where an insured sued for declaratory relief that its collateral protection insurance (“CPI”) also constituted liability insurance under the Liability Risk Retention Act of 1986 (“LRRA”), 15 U.S.C. §§3901-3906. Creditors Ins. Purchasing Group v. Doak, 2014 WL 3397673 (10th Cir. July 14, 2014).
The insured was a risk purchasing group of used car dealers and creditors, which sought to have the Oklahoma Commissioner of Insurance declare that the CPI also served to protect against third-party claims as liability insurance. CPI protects used car dealers/creditors when their collateral, the car sold, is damaged or destroyed and can also include umbrella policies which cover a bank’s interest in the collateral. The coverage is typically limited to damage to the collateral of the balance due on the applicable loan. The Tenth Circuit held that CPI is not liability insurance under the LRRA based on statutory interpretation. The LRRA §3901(a)(2)(A)(i) defines “liability,” in relevant part, as “legal liability for damages … because of injuries to other persons, damage to their property, or other damage or loss to such other persons resulting from or arising out of … any business … trade, product, services … premises, or operations.” It found that CPI affords coverage where dealers/creditors make claims with their own insurance company for damages to the buyer/debtor’s property. In sum, that CPI only insures the dealers/creditors for their losses. The Tenth Circuit held that CPI does not require payment by the dealers/creditors to anyone, but protects them from their own losses, and further found that failure of the LRRA to expressly exclude CPI did not change its analysis.