Questions about insurance claim check?

My daughter had a small accident. She rear-ended a lady so it was pretty much cut and dry. Our appraiser came out, appraised the damage, and in a few days we received a check made out to me and the bank(lienholder). We had the car repaired at a body shop and took the check to the bank to cash. The bank said their policy was to put the check on the loan and debit out the repairs when I brought the repair invoice into them. The check was more than the repair bill so I would have liked to have had that money back. The loan officer wasn't there so I had to talk to him on the phone to asked why we couldn't have the money back. I wasn't just wanting the extra money, I explained to him that I had to put the insurance premium on our credit card the last couple of months and I wanted to apply it to that. He wouldn't budge. We were in a crunch because it was late Friday evening and the repair shop was waiting for us to come pick up the car. So after I argued with him a bit and then said well ok, if that's what we have to do, then that's what we have to do. They wrote us a certified check for the repairs and a receipt for the rest as principal payment on the car note. What makes me so mad is that when I asked why it had to be done that way, all he would say is that's just the way we do it. I really don't have a problem with the balance being paid on the car because it's to our benefit either way. I just can't see how it's legal for the bank to determine what I do with it because I pay the insurance on the vehicle and the vehicle was repaired. How can I find out if this is normal practice for lienholders? I am in Tennessee.
Thanks, Debbie