Independent Banker - July 2020 - 23

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agents who specialize in covering banks can offer a thorough
peer comparison, along with a national perspective.
For example, they can provide a reference point on what
average D&O limits are for banks in your asset class.
Second, discuss what's unique about your community
bank. If you have a large farm equipment leasing operation,
offer trust services or focus on a specific industry, those
nonstandard products and services need to be adequately
covered with an additional endorsement.
Next, share the composition of your bank's board of
directors. In today's litigious climate, banks with wellknown
or influential directors must consider additional
coverage to protect those individuals who could be visible
targets. Collins says the best protection for a bank comes
from a diverse group of board members who offer a variety
of outside perspectives, because that results in better guidance
and increased ability to make informed decisions. " As
an underwriter, I'm looking for a board of directors that is
representative of the community they serve, " he adds.
Last, check what may be excluded in the policy. In July
2019, the Federal Reserve stated it was vital for financial
institutions to understand the risk that comes with exclusions
in D&O policies. The Fed said there had been an
increase " in terms or provisions contained in these policies
that exclude from coverage a wide range of " D&O liabilities.
Exclusions can potentially limit coverage and leave banks
without insurance in the event of a claim. While the Fed
called D&O policies " an important risk mitigation tool, "
it recommended that directors and senior executives fully
understand protections and limitations.
Common D&O claims
Under a community bank's general liability policy, a predictable
claim is slipping and falling in a branch lobby. In
contrast, a D&O policy has little pattern to the claims a bank
receives. However, there are still common claim categories.
Banks need to be protected against regulatory risk, from
borrowers or customers with a soured loan looking for
wrongdoing from their bank, and from current or former
employees, stockholders and other banks.
In the case of pandemics, hurricanes, terrorism or other
world events that affect the economy, banks can reduce
lender liability by staying current on SBA or other government
programs, extending credit or working out other
plans to help borrowers from defaulting.
" It's not so much the economic slowdown, but the decision
to act or not act is big, because wrongful acts are what
you're really buying coverage for in a D&O policy, " says
Ryan Hartzell, an agent with Hagan Hamilton Insurance
Solutions in McMinnville, Ore. Once banks have taken the
" If a bank is growing quickly,
you may need to assess
asset size and consider
increasing limits mid-term
in your policy, because you
don't want to be out of line
with your peer group. "
-Craig M. Collins, OneBeacon
Insurance Group
time to select the right policy, an all-too-common problem
is a failure to actually use that policy. Banks that receive a
potential claim may not use their coverage because they
plan to defend themselves, worry the cost of their insurance
will increase, don't realize their current legal trouble is covered
or miss the reporting deadline.
" When you receive a written demand for money from an
attorney, normally it's like a hot potato, " Hartzell says. " You
need to do something with it fast. "
Policies commonly allow 60 to 90 days prior to the next
renewal to report claims, yet Hartzell recommends notifying
insurance carriers within 30 days. Also, any potential
claims must be reported prior to a policy renewing for the
opportunity to have it covered.
Keep your policy current
Review your community bank's D&O policy regularly and
inform your agent of any changes in your bank's structure
or operations. Check in every six months to keep the policy
up to date with the bank's operations. Share anything new,
such as starting new subsidiaries, offering new products,
or creating a holding company or new sources of income to
ensure that they are properly reflected in the D&O policy.
When policies renew every three years, talk more in depth
with your agent or underwriter to evaluate risk and document
any new coverage and address any new exposures.
" If a bank is growing quickly, " Collins says, " you may need
to assess asset size and consider increasing limits mid-term
in your policy, because you don't want to be out of line with
your peer group. "
Susan Thomas Springer is a writer in Oregon.
independentbanker.org Q 23
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Independent Banker - July 2020

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