NU Online News Service, Oct. 13, 2:34 p.m.EDT

Reports that the Federal Deposit Insurance Corp. (FDIC) hasgiven the green light to sue more than 50 directors and officers offailed banks has one broker asking if the agency did its duediligence before deciding to sue.

"With a lot of these [D&O] policies, limits have beendepleted - terms have been carved back," said Michael White, seniorvice president of Willis' Executive Risks Practice. "They arebarebones policies."

Though the FDIC is seeking to recoup more than $1 billion inlosses related to the credit crisis, it will be interesting to seewhether there is valid, collectible insurance in place, hesaid.

Policies have already been tapped to defend securities lawsuitsfiled against directors and officers related to drastic drops instock prices where it is alleged executives breached theirfiduciary duties, Mr. White said.

The FDIC has been appointed receiver of more than 300 bankssince Oct. 1, 2000, according to its website.

When D&O insurers renewed with troubled banks, many scaledback coverage and included exclusions, Mr. White explained. One ofthese exclusions, a regulatory exclusion, could protect insurersfrom having to defend policyholders from the FDIC.

He noted that many D&O policies include exclusion againstclaims based upon the fraud or dishonesty of directors andofficers. Insurers may not be able to rely on this exclusionbecause it is triggered by final adjudication.

"Really what the FDIC may be doing here is buying a coveragedispute," Mr. White said. "The point is there is going to be a lotof litigation, which is extremely expensive."

No one knows the identities of the 50 or so directors andofficers the FDIC intends to sue, he said. The FDIC sends lettersto directors and officers once they determine litigation ispossible, which opens up more questions.

"There could be an issue about when the issue was first reportedto the insurer," Mr. White theorized. "If it was reported beforethe terms or exclusion of the policy was changed, the policyholderwill want and may be able to go to the previous policy forcoverage."