Federal Reserve Building, Washington, D.C.

The Federal Reserve wants bank directors and senior executives  to know that while their D&O insurance policies are “an important risk mitigation tool,” their policies could contain exclusions that could “potentially limit coverage” and leave them without insurance in the event of a claim. In a July 23, 2019 letter (here), the Fed informed banks and other financial institutions of the risks associated with exclusionary provisions in D&O insurance policies and urged board members and senior executives to “understand fully the protections and limitations” that the D&O insurance policies provide. As discussed below, the Fed’s guidance is good advice for directors and senior executives of any organization, not just for banks. An August 3, 2019 post on the Willis Towers Watson blog about the Fed letter can be found here.
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In the latest twist in a long-running legal saga, on March 15, 2019, the FDIC announced that it had reached a $335 million settlement of the negligence action the agency had brought against PwC in connection with the accounting firm’s audit work for the defunct Colonial Bank. The curious thing about this settlement is that it represents only a little more half of the amount that a federal district court judge awarded the FDIC as damages in a July 2018 order in the case. The FDIC’s terse March 15, 2019 press release announcing the settlement can be found here.
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Want some good news? During calendar year 2018, there were exactly zero bank failures in the United States. Zero. Nil. Nada. Zilch. The last time there were no U.S. bank failures was waaaay back in 2006. Needless to say, a lot has happened since then. But the best part of all is that because of a strong economy, and because of the purifying effects of the financial refiners’ fire, the banking sector is as healthy as it has been in many years. Hugh Son’s January 10, 2019 CNBC article about the U.S. banks’ current healthy state can be found here.
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In a January 23, 2018 unpublished decision (here), the Eleventh Circuit held that a D&O insurance policy’s prior acts exclusion does not preclude coverage where the subsequent claim against insured persons is “independent” from the alleged wrongful acts that occurred prior to the policy period. The appellate court’s opinion, in which it affirmed a district court’s ruling rejecting a D&O insurer’s argument that the exclusion precluded coverage for the FDIC’s claim against the former directors and officers of a failed bank, underscores the necessity for a link between the prior wrongful acts and the subsequent claim in order for the exclusion to preclude coverage for the claim. The Carlton Fields law firm’s February 26, 2018 memo about the decision can be found here.
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fdic1The FDIC updated its website late last week to reflect developments in the professional liability lawsuits the agency filed in the wake of the wave of bank failures that followed the global financial crisis. The unmistakable impression from the agency’s update is that the FDIC’s failed bank litigation is winding down and in its final stages. At the same time, however, a different page on the agency’s website arguably conveys a different message. The agency’s website’s failed bank list shows that though the financial crisis is well in the past, there have been a noticeable number of bank failures this year, many of them involving sizeable banks  — a development that is worth considering and keeping an eye on.
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Ninth CircuitDuring the bank failure wave that followed the global financial crisis, one of the recurring questions was whether or not the failed banks’ D&O insurance policies’ insured vs. insured exclusion precluded coverage for the FDIC’s liability claims as receiver for the failed bank against the banks’ former directors and officers . As I noted in a post late last year, the general consensus among the federal appellate courts is that the exclusion’s applicability to FDIC-R claims is ambiguous and therefore that the exclusion does not preclude coverage. As I also noted, however, there was an exception to this consensus, reflecting important wording differences sometimes found in the exclusion.

Consistent with this exception to the consensus, on January 10, 2017, the Ninth Circuit, applying California law, held in an unpublished opinion that the applicable D&O policy’s insured vs. insured exclusion was not ambiguous and precluded coverage for the FDIC’s claims against the former directors and officers of the failed Security Pacific bank. Unlike the exclusion found in many D&O insurance policies, the policy at issue in the Ninth Circuit’s case specifically precluded coverage for claims brought by any “successor” or “receiver.”  The Ninth Circuit’s opinion can be found here.
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Ninth CircuitDuring the course of the wave of failed bank litigation following in the wake of the global financial crisis has been a raft of related coverage litigation addressing the question of whether coverage for claims by the FDIC as receiver of the failed bank against the bank’s former directors and officers is precluded by the D&O insurance policy’s Insured vs. Insured exclusion. A number of courts have found the exclusion to be ambiguous and therefore that the exclusion does not preclude coverage for the FDIC-R’s claims (for example, refer here), while other courts have found the specific exclusions at issue to unambiguously preclude coverage (refer for example here). In the most recent court decision to address these issues, the Ninth Circuit, in a short unpublished October 19, 2016 per curiam opinion (here) affirmed the holding of the district court finding the Insured vs. Insured exclusion applicability to claims brought by the FDIC as receiver is ambiguous, and therefore the exclusion cannot be applied to preclude coverage for the FDIC’s claims against the former directors and officers of the failed Pacific Coast National Bank.
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GeorgiaAs readers will recall, last week I published a post about the split verdict a Northern District of Georgia jury entered in the civil lawsuit the FDIC had filed against certain former directors of the failed Buckhead Community Bank. The verdict arose in one of the rare failed bank cases to actually go all the way to trial. In the following guest post, Robert Long Tod Sawicki, Elizabeth Gingold Clark and Lauren Tapson Macon of the Alston & Bird law firm discuss the Buckhead Community Bank lawsuit trial and verdict. Alston & Bird represents the defendants in the case. I would like to thank Robert and his colleagues for their willingness to allow me to publish their article as a guest post. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is the Alston & Bird attorneys’ guest post.
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GeorgiaOn October 25, 2016, in one of the few failed bank lawsuits remaining from the bank failure litigation wave that followed the global financial crisis, and one of the very few failed bank lawsuits to go all the way to trial, a civil jury returned a verdict of $4.98 million in the Northern District of Georgia against several former directors and officers of the failed Buckhead Community Bank of Buckhead, Georgia. While the jury returned a verdict in favor of the FDIC as receiver of the failed bank on four of the loans at issue in the case, the jury found the defendants not liable for six other loans for which the FDIC sought recovery.
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fdicAs we approach what will be the eighth anniversary of the peak of the global financial crisis, many of the effects of the crisis have subsided. But while the crisis and many of the worst of its effects have largely faded into the past, a number of litigated matters related to the crisis have continued to grind through the courts. Among other things, the wave of failed bank lawsuits – that is, lawsuits filed by the FDIC against the former directors and officers of banks that failed in the wake of the crisis – has continued to roll along. However, at this point, it looks as if the failed bank litigation has just about played out. Now that the litigation is winding down, it may be time take a retrospective look at the failed bank litigation wave.
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