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

Agenda 1 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 Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Speaker Introductions 2 Moderator  Hal Reichwald is a highly experienced banking and finance attorney whose Hal Reichwald career encompasses domestic and international matters for banks and Partner, Co-Chair Financial specialty finance institutions. Services & Banking hreichwald@manatt.com Speakers  Amy Briggs’ complex business litigation practice focuses on insurance Am y Briggs coverage and bad faith disputes. She has represented numerous Partner, Litigation policyholders, including financial institutions, in coverage disputes. abriggs@manatt.com  Phillip Kaplan's financial institution practice includes the representation of Phillip Kaplan banks, insurance companies, and mutual funds in matters that include Partner, Litigation challenges to marketing and disclosure practices, dividend determinations, and pkaplan@manatt.com fee challenges under the Investment Company Act of 1940.  Robert Strandberg is the Managing Director responsible for the management, Robert service, and growth of Frank Crystal & Company’s West Coast Financial Strandberg Institution Group business. Senior Managing Director strandberg@fcrystal.com Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Background 3 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 Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Background (cont’d) 4 436 banks have closed since the inception of the financial crisis through April 28, 2012: Year Banks Closed 2008 25 2009 140 2010 157 2011 92 2012 22 – 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 Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Background (cont’d) 5 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 often was written without the banks and their officers and directors fully understanding policy terms Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Background (cont’d) 6 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 officers Statute of Limitations  3 to 6 years, depending on claim Rise of the Insurers  Declaratory relief actions – IndyMac – Progressive  Two-front war Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

D&O Policy: Basic Construction Review 7 Traditional D&O Insurance Policy “Side-C” “Side-A” “Side-B”  Coverage for claims where  Corporate Reimbursement  Entity Securities Claim Company cannot indemnify for indemnifiable claims Coverage  Balance sheet protection  Balance sheet protection the directors and officers  SEC Self-insured Retention  Personal Asset Protection  Self-insured Retention applies  No Self-insured Retention applies amount Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Mechanics of Securing Coverage 8 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 Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Potential Obstacles to Coverage 9 Prior Notice Exclusion  What is it?  When is it triggered? – Claim – Circumstances  What can a policyholder do about it? Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Potential Obstacles to Coverage (cont’d) 10 Regulatory Exclusion  What is it?  Is it enforceable?  What can a policyholder do about it? – Current market conditions Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Potential Obstacles to Coverage (cont’d) 11 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? Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Potential Obstacles to Coverage (cont’d) 12 Fraud/Personal Profits Exclusion  What is it?  When is it triggered? – Virtually all suits allege improper payments  What can a policyholder do about it? Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Potential Obstacles to Coverage (cont’d) 13 Prior Acts Exclusion  What is it?  When is it triggered? – Same wrongful act – Interrelated wrongful acts  What can a policyholder do about it? Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Potential Obstacles to Coverage (cont’d) 14 Rescission  What is it?  How could it be used under current circumstances?  What can a policyholder do about it? – No rescission – Severability Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Pragmatic Considerations After Securing Coverage 15 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 Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Market Overview & Solutions 16  Underwriting standards  Excess Side A/DIC  Best practices in obtaining and reviewing coverage Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP

Bank On It: D&O Insurance Counts 17 Q&A Bank On It: D&O Insurance Counts Webinar | Frank Crystal & Company | Manatt, Phelps & Phillips, LLP