Bank On It: D&O Insurance Counts May 1, 2012 Agenda 1 Welcome - - PowerPoint PPT Presentation

Bank On It: D&O Insurance Counts

May 1, 2012

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Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Agenda

Welcome and Introductions Background D&O Policy: Basic Construction Review Mechanics of Securing Coverage Potential Obstacles to Coverage Pragmatic Considerations After Securing Coverage Market Overview & Solutions

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Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Speaker Introductions

• Amy Briggs’ complex business litigation practice focuses on insurance

coverage and bad faith disputes. She has represented numerous policyholders, including financial institutions, in coverage disputes. Am y Briggs Partner, Litigation abriggs@manatt.com

• Phillip Kaplan's financial institution practice includes the representation of

banks, insurance companies, and mutual funds in matters that include challenges to marketing and disclosure practices, dividend determinations, and fee challenges under the Investment Company Act of 1940. Phillip Kaplan Partner, Litigation pkaplan@manatt.com

• Hal Reichwald is a highly experienced banking and finance attorney whose

career encompasses domestic and international matters for banks and specialty finance institutions. Hal Reichwald Partner, Co-Chair Financial Services & Banking hreichwald@manatt.com

• Robert Strandberg is the Managing Director responsible for the management,

service, and growth of Frank Crystal & Company’s West Coast Financial Institution Group business. Robert Strandberg Senior Managing Director strandberg@fcrystal.com Moderator Speakers

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Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Background Rise of the Regulators

• FDIC lost an estimated $75 billion
• Number of directors and officers against whom the FDIC has authorized

suit:

– 2009: 11 (0 suits filed) – 2010: 98 (2 suits filed) – 2011: 264 (16 suits filed) – 2012 Q1: 96 (10 suits filed through April 27, 2012)

• 50 criminal investigations under way
• As of April 25, 2012, there were authorized lawsuits in connection with 58

failed institutions against 493 individuals for D&O liability

– This includes 29 D&O lawsuits naming 239 former directors and officers

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Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Background (cont’d) 436 banks have closed since the inception of the financial crisis through April 28, 2012:

– Note: In 2008 Washington Mutual, IndyMac, and Silver State Bank (NV) closed, although it was very early in the crisis – Washington Mutual and IndyMac D&O lawsuits have settled, but the FDIC commenced suit against Silver State officers and directors in February 2012, 40+ months after closure

22 2012 92 2011 157 2010 140 2009 25 2008 Banks Closed Year

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Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Background (cont’d)

It takes 2 to 3 years to get to litigation, but before then the FDIC conducts information gathering about losses incurred to determine whether they can make the case that director and officer liability exists:

• generalized claims go to the D&O carrier, usually within 6 months of closure
• demand letters to identified officers and directors are sent within the next 6 months
• sometime in the following 6 months the FDIC Board of Directors will issue a statutory

Order of Investigation, which also will authorize suit

• FDIC will try to engage carrier in negotiations, but if it is rebuffed, it will either commence

suit or seek a tolling agreement with identified officers and directors

There is likely to be a substantial increase in FDIC suits against officers and directors in the remainder of 2012 and through 2013 The number of bank closures versus number of suits authorized suggests that the FDIC is satisfactorily concluding negotiations with carriers But the litigation defenses being raised by other carriers suggests that coverage

• ften was written without the banks and their officers and directors fully

understanding policy terms

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Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Background (cont’d) Lawsuits Pay Off

• Between 1986 and 2009, spent $1.77 billion and FDIC and RTC received

$6.46 billion on professional liabilities of all kinds, including directors and

• fficers

Statute of Limitations

• 3 to 6 years, depending on claim

Rise of the Insurers

• Declaratory relief actions

– IndyMac – Progressive

• Two-front war

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Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

D&O Policy: Basic Construction Review

Traditional D&O Insurance Policy

“Side-A”

• Coverage for claims where

Company cannot indemnify the directors and officers

• Personal Asset Protection
• No Self-insured Retention

amount

“Side-B”

• Corporate Reimbursement

for indemnifiable claims

• Balance sheet protection
• Self-insured Retention

applies

“Side-C”

• Entity Securities Claim

Coverage

• Balance sheet protection
• SEC Self-insured Retention

applies

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Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Mechanics of Securing Coverage Notice

• Claim

– What is a claim? – Importance of policy definition

• Circumstance
• Consequences of providing notice
• Consequences of failure to provide notice
• Limitations insurers can impose

– Not renew – Cancel – Endorse

• How your broker can help

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Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Potential Obstacles to Coverage Prior Notice Exclusion

• What is it?
• When is it triggered?

– Claim – Circumstances

• What can a policyholder do about it?

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Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Potential Obstacles to Coverage (cont’d) Regulatory Exclusion

• What is it?
• Is it enforceable?
• What can a policyholder do about it?

– Current market conditions

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Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Potential Obstacles to Coverage (cont’d) Insured v. Insured Exclusion

• What is it?
• How is it being used under current circumstances?

– FDIC as an insured – Bankruptcy trustee as an insured

• What can a policyholder do about it?

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Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Potential Obstacles to Coverage (cont’d) Fraud/Personal Profits Exclusion

• What is it?
• When is it triggered?

– Virtually all suits allege improper payments

• What can a policyholder do about it?

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Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Potential Obstacles to Coverage (cont’d) Prior Acts Exclusion

• What is it?
• When is it triggered?

– Same wrongful act – Interrelated wrongful acts

• What can a policyholder do about it?

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Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Potential Obstacles to Coverage (cont’d) Rescission

• What is it?
• How could it be used under current circumstances?
• What can a policyholder do about it?

– No rescission – Severability

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Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Pragmatic Considerations After Securing Coverage Defense/Indemnity

• Choice of counsel

– Who decides? – Whom will the insurer approve?

• Conflicts

– Between insureds – Between insureds and insurer

• Rates
• Advancement of defense fees and costs
• Adequacy of limits
• Order of payments

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Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Market Overview & Solutions

• Underwriting standards
• Excess Side A/DIC
• Best practices in obtaining and reviewing coverage

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Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Bank On It: D&O Insurance Counts

Q&A