Directors & Officers Insurance 101 The outlines of coverage used throughout this presentation are not intended to express any legal opinion as to the nature of coverage. They are only intended to provide a basic understanding of coverage.
Who is suing Directors & Officers, and why? Shareholders Accounting Fraud Dividend declaration Executive compensation Financial performance Financial transactions Breach of fiduciary duty Inadequate disclosure Inside trading Investment or loan decisions Loss or bankruptcy Merger/acquisition Stock offering Clients/Customers Antitrust violations Contract disputes Debt collection Deceptive trade practices Fraud Refusal of credit Competitors Business interference Contract disputes Copyright/patent/trademark infringement Deceptive trade practices
Who is suing Directors & Officers, and why? Employees Breach of contract Compensation duties Defamation Discrimination Employee benefits Employment conditions Failure to hire or promote Harassment Whistle blowing Wrongful termination Government Antitrust Civil rights Consumer protection Environment Fraud Securities Taxes Work conditions
Coverages Included Insured Person Liability- Side A Company Indemnification- Side B Company Liability- Side C Employment Practices Liability Fiduciary Liability Lender Liability Bankers Professional Liability Trust Errors and Omission
Company Liability Claims (by Coverage Exposure) Insurance & Brokerage/ Advisory Services 10% Securities Liability 7% Lender Liability 40% Depositor Liability 30% Professional Services 13%
Directors & Officers No two D&O policies are alike The D&O policy is designed to protect the personal assets of the directors and officers for losses arising out of Wrongful Acts Typically definition of Wrongful Act is the same The actual or alleged act, error, omission, statement, misleading statement, neglect or breach of duty
Insured Persons Liability or Side A Coverage for directors, officers and employees for loss resulting from a claim made against them for wrongful acts Coverage applies when the Bank doesn t indemnify individuals because: It is prohibited by law Bank is financially unable, due to bankruptcy, liquidation or lack of funds There is no retention\deductible
Company Indemnification or Side B Provides reimbursement to bank when bank indemnifies its directors & officers and employees for claims for a wrongful act Protects bank s balance sheet Does not provide coverage for bank s liability A retention/deductible is required
Company Liability or Side C Provides protection for the bank for its own liability against various types of claims, whether or not it s directors, officers or employees are also sued. Commonly referred as third party entity Coverage Claims brought by entities other than borrower or a customer
Employment Practices Liability Covers loss resulting from claims for actual or alleged wrongful employment Acts Wrongful Employment Acts Wrongful termination Discrimination Harassment Also need Third Party Liability
Fiduciary Liability Covers loss resulting from errors, omissions or negligent acts with respect to Administration of Employee Benefit Plans Actual or alleged breach of fiduciary duty imposed by ERISA,COBRA,HIPPA or similar federal or local laws Usually includes some coverage for Voluntary Correction Fee Programs
Lender Liability Coverage protects against losses relating to: extensions of credit agreements or refusals to extend credit loan servicing collection or restructuring of any credit Make sure it covers third party suits as well Broad Form Lender Liability Largest source of lawsuits in banking
Bankers Professional Liability Coverage for loss resulting from claims due to errors or omission, misstatements, neglect or breach of duty involving professional services provided to or on behalf of customer Professional services are fee-based services including, but not limited to: Depository Services Brokerage Services Insurance Services Notary Services
Company Claims Third Party 28% Customer 72% Examples of Third Party Plaintiffs Beneficiaries and Spouses Customer s Customers Custodians Contractors (construction loans) Other Banks (loan participations & collateral disputes) Vendors and Suppliers (contract disputes) Regulators and Shareholders
Trust Errors & Omissions Coverage for claims against bank or insured person for wrongful acts related to rendering or failure to render trust department services Includes, acting as administrator, custodian or trustee of personal or corporate trust accounts.
Cyber Insurance When you think Cyber- Think Sensitive Information 169% increase in Cyber Claims from 2011-2015 Not a matter of IF, but When, banks are low hanging fruit Hard to say what limits are enough when it comes to Cyber Insurance
Cyber Liability Public Relations Coverage- Restoring the Name and reputation of the Bank Recent Newsworthy Hacks Sony Target Home Depot JP Morgan/ Chase Michaels
Cyber Liability/Mitigation Insurance Invasion of Privacy Label, Slander, Defamation, etc. Loss or damage to Electronic Data of customer Denial, impairment or interruption of service Loss of Business opportunity Copyright, trademark infringement
Not All Losses are Hacks! Former Bank employee emailed 9,000 records to himself prior to leaving Bank employee inadvertently sends to a wrong third party- Names, account numbers, SSNs Lost Cell phone, Laptops, thumb drivers, etc. HUMAN ERROR
Cyber Policies Differ Greatly ALL Policies are NOT created Equally! Some only provide Liability ( Customer sues) Some only reimburse the bank an amount to offset the cost the bank incurs Some reimburse and point them in the right direction Some provide the $$ and handle the claim for the bank. Want a policy that has 1 st and 3 rd Party Coverage
Proactive Approach to Cyber Review Banks Policies and Procedures Incident Response Plan Contact the Authorities, Carrier, Agent, etc.
Issues with Cyber Liability Today 47 different state laws on how a bank must notify customers. Notification laws are based on where the customer resides. Definition of breach may vary from state to state. What the banks must do can vary. Notify customer. Notify the attorney general, etc. When must they notify? Some sooner than others.
Financial Institution Bond The outlines of coverage used throughout this presentation are not intended to express any legal opinion as to the nature of coverage. They are only intended to provide a basic understanding of coverage.
Bond Basics When you think Bond Think $$ NO Bond covers everything. Not all bond policies are created equal Make sure you have the proper Endorsements on your bank s bond Review annually with Agent and Carrier
Embezzlements & Best Practices To this day, we typically discover fraud when someone is gone out of the office Insurance companies like to see NINE days off for vacation. A full week with weekends before and after Do not allow employees back into the building Cut off all information to the bank server
Computers Fraudulent Wire Transfers Leading cause of loss on the bond policy Need a Written Wire Agreement Call Back Procedures in Place Fraudsters are getting Smart Corporate Account Take Over Social Engineering Fraud
Debit Card Losses Debit Card losses continue to plague banks Plastic Card Policies are available Broader coverages Lower Deductibles Worldwide Coverage Card NOT present