Banks purchase liability insurance to cover escrow agents, tax planners, financial planners, estate planners and more. A Bankers Liability Policy can cover directors, officers, as well as full-time, part-time and seasonal workers in these lending institutions.
Because a bank could be sued for a breach of duty, misleading statement, incorrect statement or other mistake related to its deposit, brokerage, insurance, real estate, credit card or other services it needs to be fully protected.
If, for example, a customer decides to sue a bank for honoring a fraudulent check or fraudulent wire transfer that caused funds to be erroneously removed from the customer’s account, that would require a Bankers Liability Policy to address these issues.
Exclusions and indemnification for civil money penalties
Bank officials have long had a potential exposure to civil money penalties (CMP) that represents a continuing risk. However, with many of the leading bank insurers unwilling to include a civil money penalties endorsement on many of their policies there decidedly could be a gap in the liability insurance protection for bank directors.
There are policies available in the marketplace that provides individuals with CMP protection, written in the name of, and are paid for by, those individuals for their own benefit. The bank, however, is not an insured under these policies. These policies are available at varying limits of liability and with varying retentions.
As banks’ performances have improved, many banks enjoy more uneventful management liability insurance renewals, and even some price decreases. The availability of some policies is generally subject to underwriting. Some products often are available only for individuals at banks that meet certain credit and leverage ratios, and usually are not available to individuals at banks that are subject to regulatory orders or agreements.
Liability concerns for directors and officers
Bank directors who have questions about their insurance coverage needs should seek the advice of an agent familiar with this line of coverage. If, for instance, significant reversals at a banking institution resulted in liability claims against the company’s officials, the bank’s directors and officers (D&O) insurance could be the directors’ last line of defense. This is just one more type of Bankers Liability Policy designed to address negligence, errors, or other mistakes that can result in a claim.