Community bank insurer, Kansas Bankers Surety, recently announced that it will not renew liability insurance policies expiring after early June, 2016. Although vexing, community banks now have an opportunity to carefully review and compare policies provided by competing insurers to ensure that they are securing the coverage that best suits their institution. When selecting a new insurance policy, Bankers should consider all aspects of the liability insurance policy. The following is a list of important factors you should look for consider when comparing policies:
- Coverage when you need it most – D&O coverage that does not exclude claims by the FDIC, other governmental entities or regulators or criminal matters.
- Narrower “insured v. insured” exclusions – exceptions for receivers, bankruptcy trustees and others standing in the shoes of the bank; narrower exceptions for derivative actions and for claims by historical directors and officers.
- Narrower conduct-related exclusions – plaintiffs may allege illegal, dishonest or fraudulent conduct, but an exclusion should not apply unless there is a “final adjudication” by the court that such conduct actually occurred, and the insurer cannot deny coverage to one insured because another was involved in misconduct.
- Favorable defense, choice of counsel, and settlement provisions.
- Errors & Omissions liability coverage extending beyond lender liability claims.
- Employment practices liability coverage for settlements and judgments, in addition to defense coverage.
- Claims-made coverage with “notice of circumstances” and run-off options using standard language that smooths transitions in M&A deals and other circumstances involving changes of insurers or owners.
Community bankers should consult with insurance brokers about securing replacement coverage, pricing, and related terms. They should specifically ask their brokers about the differences between insurance policies of potential replacement insurers, about additional coverages provided by potential replacement insurers, and about avoiding gaps in coverage possibility affected by the KBS transition. We often help bankers understand insurance issues as they work with their brokers, bringing to bear our legal expertise and experience with insurers in the market, insured litigation and other claims, regulators, distress and insolvency, coverages, policy forms and endorsements.