Has Your New Jersey Business Reviewed Its D&O Liability Policy Lately?

December 5, 2013
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Directors and officers insurance coverage can be essential to shielding top management from personal liability. However, the protection is only as good as your insurance policy. Most recently, the Federal Deposit Insurance Corporation (FDIC) issued a warning to financial institutions regarding “an increase in exclusionary terms or provisions in director and officer liability insurance policies.” As the FDIC notes, certain policy terms may increase the potential personal exposure of board members and bank officers in civil lawsuits. Accordingly, the FDIC is encouraging board members and executive officers to fully understand the answers to the following key questions, particularly when contemplating renewals and amendments of existing policies:
  • What protections do I want from my institution’s D&O policy?
  • What exclusions exist in my institution’s D&O policy?
  • Are any of the exclusions new, and if so, how do they change my coverage?
  • What is my potential personal financial exposure arising from each policy exclusion?
The FDIC letter also reminds regulated entities that an insured depository institution or depository institution holding company may not purchase an insurance policy that would indemnify institution-affiliated parties (IAPs) for civil money penalties assessed against them in an administrative proceeding or civil action commenced by any federal banking agency. Even if the IAP agrees to reimburse the depository institution for the cost of such coverage, the purchase of the insurance policy by the depository institution is prohibited. While the FDIC letter is directed toward financial companies, the message can apply to all businesses that carry D&O insurance coverage. Companies never want to discover after a suit is filed that their policy does not cover what they expected. Accordingly, it is advisable to routinely review your policies with an experienced New Jersey business attorney. If you have any questions about the FDIC’s warning letter or would like to discuss the legal issues involved, please contact me, Charles Yuen, or the Scarinci Hollenbeck attorney with whom you work.