Directors, Officers Can't Risk Banking without Insurance

By Kessinger, Carolyn C.; Ardis, Patrick M. | American Banker, September 30, 1991 | Go to article overview

Directors, Officers Can't Risk Banking without Insurance


Kessinger, Carolyn C., Ardis, Patrick M., American Banker


Directors, Officers Can't Risk Banking Without Insurance

Directors and officers of financial institutions are particularly vulnerable to professional liability suits.

They must protect both depositors and stockholders. And, technically, they may be held liable for any losses sustained by the institution, its depositors, or its shareholders.

One might think that if the directors and officers of a financial institution exercise reasonable care and diligence in performing their duties, they would not be subject to liability suits. Unfortunately, this is not the case.

In recent years, regulatory agencies such as the Federal Deposit Insurance Corp. or the Resolution Trust Corp., and/or shareholders, have seldom failed to sue all of the directors and many of the officers of an institution that has closed - or almost closed - because of excessive bad loans, insider dishonesty, or both.

Purpose of Liability Insurance

Not all employees are covered by D&O insurance, although some carriers - by endorsement - may provide this additional protection. With the exception of the corporate reimbursement section, the corporate institution itself is not insured.

D&O insurance indemnifies past and present directors and officers of an insured corporation and its subsidiaries against claims arising from their alleged wrongful acts, including "errors, misstatements, misleading statements, acts or omissions, neglect, or breach of duty."

A clear distinction has to be drawn between claims and suits against a corporation for its alleged wrongful acts and those taken against directors and officers personally. D&O insurance does not help the corporate institution with its direct liabilities. It does protect the directors and officers personally, and the corporate institution insofar as it may indemnify or reimburse the directors and officers.

Common Allegations

As indicated by court papers, shareholders or liquidators have commonly alleged that directors and officers of financial institutions and/or companies have assented to, or failed to prevent:

* Repeated violations of the company's written lending policy.

* Numerous improvident lending transactions.

* Numerous loans to individuals and/or entities that were not creditworthy or not within the normal lending territory.

* Numerous improvident concentrations of credit.

* Loans made without adequate collateral.

* Loans made without a current credit check on the borrower.

* Loans made without properly perfecting the company's security interest in the collateral.

* Excessive and/or improvident overdrafts.

* Improvident borrowing practices by the company.

* Improvident internal control and audit practices.

According to the Wyatt Co.'s 1989 report, 24% of the financial institution D&O suits were brought by stockholders and 13.4% by governmental agencies. Protection from stockholder derivative suits is limited or eliminated under many of the D&O policies marketed today. The regulatory exclusion eliminates suits for all governmental agencies.

D&O policies, unlike blanket bonds, are not written in a standard form. Coverage is based on a blending of the most common clauses.

Each policy must be carefully reviewed to determine its precise coverage. Policies are usually issued on a blanket basis (without the need to schedule directors and/or officers by name or position) with the premium paid by the insured organization.

D&O policies are generally written on a "claims made" basis, providing protection for wrongful acts committed before or during the policy period but discovered during the policy period. D&O insurance may be a financial institution's broadest safety net, covering risks that are not covered or adequately protected by its fidelity, computer crime, and other policies. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Directors, Officers Can't Risk Banking without Insurance
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.