On October 10, 2013, the FDIC issued an “Advisory Statement” on D&O insurance to FDIC-supervised banks with “suggested routing” to the Board of Directors and Senior Executive Officers (copy here). The FDIC urges each Board member and executive officer to “fully understand” the answers to these four questions, which are equally applicable to other institutions and have relevance beyond FDIC-supervised banks:
- What protections do I want from my institution’s D&O policy?
- What exclusions exist in my institution’s D&O policy?
- Are any of the exclusions new, and if so, how do they change my coverage?
- What is my potential personal financial exposure arising from each policy exclusion?
As noted by the FDIC, D&O insurance is important in attracting and retaining qualified individuals to oversee and manage the affairs of the banks.
The FDIC has its own motivations for issuing this Advisory Statement, which are beyond the scope of this post. That said, the FDIC’s advice is sound, not just for directors and officers of FDIC-supervised banks, but for all directors and officers whose service creates personal financial exposure (including service on the boards of non-profits), and the corporations seeking to attract and retain them.
Understanding the answers to these four questions requires a broad, current understanding of the applicable law interpreting D&O insurance policies, in addition to the obvious commercial questions regarding what coverage is available and on what terms. There are no “standard form” D&O policies, and subtle differences in wording may have severe consequences down the line. Given the personal financial risk, and the complexity of the issues involved, corporations and their directors and officers frequently retain experienced insurance coverage counsel to assist in the placement and renewal of D&O insurance.