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Committee approves bill requiring lienholder be named on vehicle-claim checks in certain cases
Summary
The committee passed a bill requiring settlement checks for motor vehicle claims to include the perfected lienholder's name when the lienholder has a physical location in Arkansas; supporters said it would reduce repossessions and help apply claim payments to outstanding debt.
State Representative Frank Kavanaugh presented a one-page bill requiring that, when there is a perfected lienholder with a physical location in Arkansas, the insurer's check for a motor vehicle claim be made payable to both the insured customer and the lienholder.
Nut graf: Sponsors said the measure is intended to ensure claim payments are applied to secured debt or vehicle repairs rather than being cashed by the insured and potentially leading to repossession and greater consumer harm. The committee approved the bill by voice vote after testimony from an industry representative raising concerns about operational delays.
Kavanaugh described the mechanics: lienholders with perfected security interests in Arkansas can be identified via a VIN search and most insurance companies already find lienholders on total-loss claims. He said partial-loss checks — for example, a $6,000 repair on a $10,000 loan — are commonly issued to the insured only and may not be applied to the loan, prompting repossessions.
Derek Smith, an attorney with Mitchell Williams law firm representing State Farm Insurance Company, testified that State Farm had processed more than 80,000 physical-damage claim payments in Arkansas in the last two years and warned the bill would require lien searches and additional processing for each claim, possibly delaying payments to policyholders. Smith said third-party (third-party liability) claims and obligations differ by product and that operational impacts vary.
Representative Kavanaugh and supporters argued lienholders generally have processes to manage checks and that the bill would help ensure funds are applied to secured debt or vehicle repairs. The committee voted to pass the bill by voice vote; the transcript records the motion and the committee's affirmative voice vote.
