Should You Have Insurance For A Judgment Collection Business?

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I am not an attorney, I am a debt and judgment matchmaking expert (Judgment and Collection Agency Broker)

. This article is my opinion, based on my experience in California, and laws vary in every state. If you want a strategy to use or legal advice, you should contact a lawyer.

Anyone with a new judgment recovery or debt collections business will think more than once about which kind of insurance they could purchase. There are risks in every business, and the risk of getting sued is one of the more important risks to think about. The judgment enforcement business can have at least five additional (although very rare) risks, in addition to the normal risks with any business or venture:

1) What if you become disabled, or die, or leave the judgment business and do not assign all or most judgments back to the original judgment creditors? You or your executors could get sued, and much worse, sued for the creditor's share of a purely theoretical and overly optimistic value for the judgment.

2) Allowing a judgment to expire during your watch. Judgments must be renewed, if one does not renew a judgment, it is lost. Again, the original judgment creditor could attempt to sue you, for a way too optimistic and theoretical judgment value.

3) FRCA and FDCPA violations. Judgment Enforcers must be beware of the laws. Being discreet, staying polite, having common sense, and taking care not to accidentally or purposely disclose to 3rd parties about the debtor's debt, covers you on most of the laws. If you violate a law, the debtor might retain an good attorney, and sue you for a lot more than the judgment's face value.

4) Levying the wrong person's bank account. Because courts do not usually place debtor's dates of birth and social security numbers on judgments, judgment debtors with common names can be problematic. Also, identity-theft may make the wrong person show up as a judgment debtor.

It can take a lot of energy to verify things, when someone claims you had the sheriff levy the incorrect person as the debtor. Many that claim they are not the debtor will be angry, and about half of those people are lying because they are actually the judgment debtor.

If you do pay the sheriff to levy the wrong bank account, immediately return the money taken from the mistaken judgment debtor the amount taken, their banking and bounced check costs, and something extra for their trouble - enough extra to make them happy. One suggestion would be three times their costs, or $100, whichever is more.

5) Unreasonable or insane original judgment creditors. Some do not understand the costs and difficulties of judgment recovery. Some might attempt to sue you if you settle too low, do not challenge a debtor's bankruptcy, lose a motion to vacate the judgment - even when it is not your fault, or your inaction or action was the correct action to take. Even when the original judgment creditor has no valid reason to try to sue you, it might happen.

While one might be sued, for one of the risks listed above, it is usually rare that the party suing you would win. However, lawsuits are always expensive, time consuming, and a hassle.

Insurance almost never covers you when you intentionally avoid your responsibilities. If you become disabled or die, this becomes a preparation and behavior issue, not an insurance issue. Your executors should understand they should assign your judgments back to the original creditors, unless you have another way to have the judgments handled.

In a judgment business, you are more likely to get sued, long before you become disabled or die. Many times, the only insurance you would want is to cover you if you got sued. The kind of insurance that usually comes to mind is Errors and Omissions (E&O) insurance.

E&O insurance is common in many businesses, however it is more difficult to get in a collection or judgment recovery business, partly because many insurance companies don't completely understand these kinds of businesses.

There could be an argument that because most judgment recovery specialists are sole proprietors working from home, representing themselves, their homeowners insurance will cover them for "personal liability" resulting from their ownership of judgments. Home insurance policy salespeople do not brag about this, and many are not even aware of this, however the details of policies in many cases support this. (I am not an insurance or a legal expert.)

If that last paragraph does not sound right, or if you have a business office, your homeowner's insurance policy is off the table. Forget about using a bond, unless it is required by someone you are doing business with or by law. Bonds will not protect you, they protect the general public against loss. You must pay the bond premiums, and then you must pay the bond company every time a claim is filed.

You might wish to buy E&O insurance, if only to satisfy the requirements of some data providers. If you look, you can find E&O insurance providers for a judgment or collection business. (One of the cheapest places I have found is at www.rlicorp.com). E&O insurance is sometimes expensive, and if you get sued, you have to immediately pay the deductible, that is expensive. The insurance company handles the lawsuit, not necessarily with a goal of protecting your name and business. Even when the lawsuits are frivolous, you still must pay.

Another problem with having E&O issuance is that it could place a "bulls eye target" on you. Some may believe that if you have E&O insurance, you have deep pockets. Many of the valid reasons you could be sued can be greatly reduced if you learn the law, assign judgments back when appropriate, you remain reasonable, and don't allow judgments expire on your watch.

Unless you must have E&O insurance for someone you are doing business with, or a data provider, you may save money with your actions, attitude, and your willingness to hire a good lawyer if you get sued. Most of the time, if you remain careful, and get sued once in a while for mistakes and oversights, or for frivolous reasons, what you pay an attorney over the long-term will be less than the long-term cost of having E&O insurance.

As mentioned before, E&O insurance can make one a target. If you are sued with a frivolous lawsuit, it could be a good idea to ask the other side's lawyer who their E&O insurance carrier is?, knowing that E&O claims are expensive and must be paid immediately. Also, many of the FDCPA and FRCA law applies mostly to consumer debts such as car loans and credit cards.

by: Mark Shapiro

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