Wednesday, November 6, 2013

FDIC Guidance about New Exclusions in Liability Insurance Policies

I have written on this blog about the recurring issue of FDIC-related exclusions in appraiser professional liability (or E&O) insurance policies.  Today, an appraiser in Florida was sued by her E&O insurer to deny coverage for damages in an FDIC lawsuit against her based on such an exclusion in her policy.  I will write about that case in a future post (update: the post about that case is here).  The FDIC itself recently weighed in on the appearance of these types of exclusions in insurance policies.  That guidance is discussed below.

The FDIC issued its guidance in Financial Institution Letter, FIL-47-2103, dated October 10, 2013.  This guidance is for banks with regard to the insurance policies that financial
institutions purchase for their directors and officers ("D&O" insurance).  The FDIC's advice, however, could just as well have been written for appraisers and other outside service providers to banks, such as AMCs because it is just as relevant to them in connection with E&O.

In its Financial Institution Letter, the FDIC advised banks:

"In recent years, the FDIC has noted an increase in exclusionary terms or provisions contained in depository institutions’ D&O insurance policies that may adversely affect the recruitment and retention of well-qualified individuals. When such exclusions apply, directors and officers may not have insurance coverage and may be personally liable for damages arising out of civil suits relating to their decisions and actions. In some cases, directors and officers may not be fully aware of the addition or significance of such exclusionary language."
Again, this guidance is specifically for banks with regard to their own D&O coverage, but the advice is equally important to those working outside of financial institutions.  The full Financial Institution Letter is available on the FDIC's website here.

With respect to appraiser professional liability insurance, exclusions for FDIC and other regulatory agencies have become a significant issue.  Such exclusions have appeared in some policies (depending on the state and dates of coverage) sold to appraisers by Navigators Insurance Company, General Star, Star Insurance Company, Five Star/Lloyd's and CNA (more information is available in this prior post).  However, not all policies for appraisers have FDIC and regulatory claims exclusions.  Even in high risk states, coverage without such exclusions is available in LIA's appraiser E&O program and also may be available in competitive programs from Intercorp and FREA.