Magazine article American Banker

Bankers Face Growing Exposure to Complex New Legal Liabilities: They Have 'False Sense of Security,' One Risk Manager Says

Magazine article American Banker

Bankers Face Growing Exposure to Complex New Legal Liabilities: They Have 'False Sense of Security,' One Risk Manager Says

Article excerpt

SAN FRANCISCO -- Bankers have a higher legal profile than other business people and are increasingly being threatened by new sources of liability appearing on the legal landscape.

That was the message to those attending the American Bankers Association national insurance and protection conference here last week.

Bank officers and directors, said Ron M. Lawless, vice president, risk management, for First City Bancorporation, Houston, "have a false sense of security -- a mystique in their minds that they are covered for everything. But they may not be."

Bank directors' vulnerability results from the "special fiduciary relationship to potential plaintiffs," insurance broker James F. Donahue, managing director of Shelton & Bowles Inc., Dallas, told the audience.

Mr. Donahue said bank officers and directors must know about several new developments to understand the extent of their liabilities. One is the 1970 federal racketeering statute, formally known as the Racketeer-Influenced Corrupt Organizations Act, which has increasingly been used by plaintiffs in seeking treble-damage claims.

"RICO is finding a lot of actions against ordinary boards of directors," said Mr. Donahue.

There is also a trend in the law toward extending the concept of derivative rights beyond stockholders to creditors, Mr. Donahue said.

"Indemnity is much harder to come by (in this kind of suit) and directors' corporate shield is impaired in a derivative action," he said.

He said the Federal Deposit Insurance Corp. …

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