There are a number of ways directors and officers can get ready personally for potential FDIC litigation.
1. Take steps to understand the bank’s D&O insurance policies before the bank is closed. Determine whether policy coverage is offset by the fees for defense of claims. If so, understand the FDIC wants recovery, not protracted litigation.
2. Realize that the terms of D&O insurance policies are not well understood. In some cases, D&O policies may require an actual lawsuit to be fi led for the coverage to go into effect. That might leave a director without coverage if the FDIC is merely in the investigative stage of the case or just sends out a notice letter, some or all of which may occur after the bank has failed.
3. Directors should seek “tail coverage” for claims brought after the policy’s expiration, but during an extended notice period. The coverage should be at both the bank and holding company level. If the holding company remains solvent, its ability to indemnify the bank’s directors could prove important if the D&O policy is unavailable.
4. Obtain copies of bank records that can document your role at the bank before it failed, including board minutes, loan committee minutes, documentation of compliance and correspondence with regulators. Obtain copies of charters, bylaws, D&O policies, indemnifi cation agreements and other such items. Once the FDIC takes over a bank, it will not let offi cers and directors have access to any bank records without a subpoena.
5. Retain new legal counsel for the board before the bank closes. Such counsel will act for you as your counsel, not the bank’s, in helping you prepare for the closing of the bank. Such counsel may, potentially, identify issues and help correct them pre-failure. As discussed above, the former attorneys for the bank will now owe their allegiance to the FDIC, not the former board.