Managing Risk in a Collateral Protection Insurance Program

During the 1980s and 1990s, many lenders faced litigation arising out of their practices in insuring collateral where borrowers failed to do so. Lender-purchased insurance is referred to as "Collateral Protection Insurance," "CPI," or force-placed insurance. A small group of plaintiffs' class action lawyers turned CPI litigation into something of a cottage industry. Most major lenders faced CPI litigation, and as a result took affirmative steps to minimize the risks of future CPI litigation.