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Counter-Cyclical Thoughts About D&O Insurance

August 30, 2017

Authors

Ken Achenbach

Counter-Cyclical Thoughts About D&O Insurance

August 30, 2017

by: Ken Achenbach

It can be a challenge, when economic times are relatively good, to take time away from thinking about new opportunities to discuss topics like D&O insurance.  Even though I am biased, I’ll admit that, in those times, discussing the risks of potential liability and how to insure those risks can feel both a pretty unpleasant and a pretty remote thing to be discussing.  However, like all risk-related issues, it is precisely in those times when business is going well that a little bit of counter-cyclical thinking and attention can do the most good over the long haul.

As you approach your next D&O policy renewal – and particularly in the 30-60 days prior to the expiration of your current policy, there are a few things that you may want to consider.

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Forming a Game Plan for TruPS

November 14, 2014

Authors

Ken Achenbach and Michael Shumaker

Forming a Game Plan for TruPS

November 14, 2014

by: Ken Achenbach and Michael Shumaker

For the past 15 years, trust preferred securities (TruPS) have constituted a significant percentage of the capital of many financial institutions, mostly bank holding companies.Their ubiquity, both as a source of capital and as a common investment for banks, made them a quiet constant for many financial institutions. Even in the chaos of the Great Recession, standard TruPS terms allowed for the deferral of interest payments for up to five years, easing institutions’ cash-flow burdens during those volatile times. However, with industry observers estimating that approximately $2.6 billion in deferred TruPS obligations will come due in the coming years, many institutions are now considering alternatives to avoid a potential default.

Unfortunately, many of the obstacles that caused institutions to commence the deferral period have not gone away, such as an enforcement action with the Federal Reserve that limits the ability to pay dividends or interest. It is unclear if regulators

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A Rundown on Georgia’s FDIC Failed Bank Litigation

June 11, 2013

Authors

Michael Carey

A Rundown on Georgia’s FDIC Failed Bank Litigation

June 11, 2013

by: Michael Carey

As we have reported before, Georgia has the unfortunate distinction of leading the nation in bank failures since the onset of the late-2000s financial crisis.  Georgia has also seen far more FDIC bank failure lawsuits than any other state:  15 of the 63 bank failure cases brought by the FDIC since 2010 involve Georgia banks and are currently pending in Georgia federal courts.  While some allegations vary from case to case, the general thrust of all of these lawsuits is that the former directors and/or officers of the banks were negligent or grossly negligent in pursuing aggressive growth strategies, with these strategies usually involving a high concentration of risky and speculative speculative real estate and acquisition, construction and development loans.  Here is a rundown of the most interesting and significant developments to date:

The most heavily litigated issue has been whether the business judgment rule insulates bank directors and officers

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FDIC Sues Former Bank Officer for Fraud

July 18, 2012

Authors

Bard Brockman

FDIC Sues Former Bank Officer for Fraud

July 18, 2012

by: Bard Brockman

On May 23, 2012, the FDIC filed an action against the former directors and select former officers of Innovative Bank (“Innovative” or the “Bank”).  Innovative was based in Oakland, California, and it had four other branches in the state when it was closed by the FDIC in April 2010.  For a copy of the FDIC’s lawsuit, click here.

The FDIC’s complaint in this case contains the same hallmark claims for negligence, gross negligence and fiduciary breach that we have come to expect from its D&O suits.  But this case is unique in that the FDIC also asserts a direct claim for fraud.

The alleged fraud was rooted in the Bank’s high-volume SBA lending program.  According to the complaint, the senior vice president in charge of SBA lending, Jimmy Kim, had free rein to originate, recommend and approve SBA loans, all with virtually no supervision by senior management or

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D&O Carrier Seeks Denial of Coverage Against Former Directors of Failed Bank

May 1, 2012

Authors

Jake Bielema

D&O Carrier Seeks Denial of Coverage Against Former Directors of Failed Bank

May 1, 2012

by: Jake Bielema

On March 30, 2012, Progressive Casualty Insurance Company filed an action naming as defendants the FDIC as Receiver of Omni National Bank, as well as the former officers and directors of Omni whom the FDIC had previously sued.  The Complaint asserts a claim for declaratory judgment that Progressive is not obligated to cover any of the claims asserted by the FDIC against the former directors and officers in the Omni litigation.  This action is significant in that it raises a number of coverage issues which former directors and officers of failed banks may see raised by their own D&O insurance carriers, and the presence or absence of D&O coverage is a critical factor considered by the FDIC in determining whether to bring an action seeking any kind of recovery.

Progressive had underwritten a director and officer liability policy for the directors and officers of Omni with a total

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FDIC Criticizes Civil Money Penalty Insurance

December 5, 2011

Authors

Ken Achenbach

FDIC Criticizes Civil Money Penalty Insurance

December 5, 2011

by: Ken Achenbach

In recent exam cycles, bankers have generally been no strangers to heightened scrutiny by FDIC examiners on a variety of topics.  In the past several months, the insurance policies carried by banks have been added to the list of potential hot-button items.

Specifically, FDIC examiners have begun to scrutinize bank insurance policies to determine whether the policies provide coverage for civil money penalties (“CMPs”) that may be assessed against bank officers or directors. If any bank insurance policies are found on examination to contain an endorsement extending coverage for CMPs to officers or directors, the FDIC is citing such policies as being in violation of Part 359 of the FDIC’s Rules and Regulations.

Part 359, among other things, prohibits banks and affiliated holding companies from making certain “prohibited indemnification payments.” These prohibited payments include any payment or agreement to pay or reimburse bank

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Recent Settlement Indicates FDIC’s Focus on D&O Insurance

October 10, 2011

Authors

Jake Bielema

Recent Settlement Indicates FDIC’s Focus on D&O Insurance

October 10, 2011

by: Jake Bielema

A recent negotiated settlement in an FDIC failed bank lawsuit, which has as its sole focus potentially available funds under a D&O policy, and in fact assigns claims under that policy to the FDIC, further suggests that the FDIC’s real focus in failed bank litigation is on proceeds that may be available under D&O policies, as opposed to the personal assets of former directors and former officers.

The First National Bank of Nevada (“FNB Nevada”) failed on July 25, 2008, less than thirty days after First National Bank of Arizona (“FNB Arizona”) was merged with an into FNB Nevada.  On August 23, 2011, the FDIC filed an action in the District of Arizona against the former CEO and Vice Chairman of the Bank’s holding company as well as of both FNB Nevada and FNB Arizona and additionally against the holding company’s Executive Vice President (“EVP”), who was also the

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Can You Improve Your D&O Insurance Coverage?

March 28, 2011

Authors

Bryan Cave

Can You Improve Your D&O Insurance Coverage?

March 28, 2011

by: Bryan Cave

There is a common presumption among community banks, and their directors, that D&O insurance coverage is a commodity.  That presumption is inaccurate; there can be significant differences in the scope and quality of D&O coverage between policies and among carriers.  D&O insurance policies can, and should, be negotiated to improve the coverage for directors and officers.

On March 24, 2011, the ABA’s Banking Journal published an article by Bryan Cave attorney Jim McAlpin, “How good is your bank’s D&O policy?

In the article, Jim highlights ten possible enhancements that you may be able to obtain in your D&O coverage, including:

  • limiting the definition of “Application” in the policy to public filings for the past 12 months;
  • expanding the definition of “Claim” in the policy;
  • obtaining non-rescindable Side A coverage;
  • limiting insured vs. insured carve-backs for derivative suits and bankruptcy;
  • carving back defense costs from regulatory exclusions; and
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