The FDIC issued a Financial Institution Letter (FIL) this month advising banks of the recently noted increase in exclusionary provisions in director and officer (D&O) liability insurance policies being purchased by banks. (See FIL-47-2013.) The FIL further notes that these exclusionary provisions may adversely affect the ability of banks to attract and retain knowledgeable and well-qualified individuals as directors and officers.
Without stating those exclusions that have come to the FDIC's attention, the exclusion that is of obvious and paramount importance to the FDIC is the so-called regulatory exclusion. One of the most common exclusions in a bank D&O policy is an exclusion from coverage for any regulatory action taken against directors and officers. As the FDIC and the other bank regulators have increased their actions against directors and officers in recent years, insurers have taken notice and increasingly are inserting a regulatory exclusion in renewal policies.
The FDIC advises that the choice of D&O coverage should be based on a well-informed analysis of the costs and benefits, with particular emphasis on any policy exclusions. Now, and certainly at renewal, would be a good time to review your D&O coverage and policy exclusions.
In its guidance, the FDIC "urges" each board member and executive officer to fully understand the following issues related to their D&O coverage:
For those banks and bank holding companies that are publicly traded, D&O coverage takes on added importance. The greatest potential exposure that directors and executive officers face is from shareholders, and more particularly, plaintiffs' law firms purporting to represent shareholders in shareholder derivative claims and class actions. For example, for banks engaging in merger and acquisition transactions, it is typical in recent years for a shareholder claim to be asserted alleging breach of fiduciary duties by directors. D&O policies should be reviewed to ensure that such claims, including associated defense costs, are fully covered and in amounts sufficient to fully protect directors and officers.
As a final note, the FDIC also points out in its guidance that banks and bank holding companies are prohibited from purchasing coverage that would pay or reimburse an officer or director for the cost of any civil money penalty assessed in an action brought against such an individual by any federal banking agencies.
Jeff Clopeck was a featured speaker on a panel that discussed regulations regarding equity crowdfunding, titled "Equity Crowdfunding is Here: The Report Card to Date," during a Technology and Innovation Committee program at the Smaller Business Association of New England on January 26.
On January 11 and 12, Joy Harmon Sperling will be co-chairing the American Conference Institute’s 22nd National Forum on Residential Mortgage Litigation & Regulatory Enforcement.
Joy Harmon Sperling and Rachel Packer wrote an article, "No Such Thing As A Free House? NJ Court Says Otherwise," for Law360. The article examines a recent unpublished opinion rendered by the Superior Court of New Jersey, Bergen County in Anim Investment Co. v. Shaloub, No. F-30508-15, 2015 N.J. Super. Unpub. LEXIS 3042 (Ch. Div. June 30, 2016).
On June 30-July 1 Warren Whitaker spoke at STEP Global Congress 2016: Advising Families Across Generations in Amsterdam on "Is America the new Switzerland?"
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Jed Davis was quoted in a breaking news article, "New York eases proposed cyber regulations after industry complaints," published by Reuters.
Day Pitney Press Release
Eliza Fromberg was quoted in an article, "FINRA's Capital Acquisition Broker Rules Face Tough Sell," in Law360.
Eliza Fromberg was quoted in an article, "Introduction of Regulation Crowdfunding" in Financier Worldwide Magazine.
Michael Rave was quoted in an article, "Banks Have Another Reason to Sell with SBLF Dividend Hike," in American Banker. In the article, Rave discusses how banks that hold Small Business Lending Fund (SBLF) capital are likely to be acquired. "They aren't in a position to repay the money or refinance it. They don't have a lot of choices," explains Rave.