NU Online News Service, April 22, 2:55 p.m. EDT
The new rules governing financial services institutions could have some unexpected consequences for executives and directors and open new business opportunities for insurers.
Insurance broker Marsh, a subsidiary of Marsh & McLennan Companies, says it has developed an insurance program that will provide additional insurance cover to executives and directors at financial companies. Specifically, the coverage is aimed at company officials whose personal assets "are now at greater risk as a result of expanded Federal Deposit Insurance Corp. authority," says Marsh.
The broker says the FDIC Receivership Endorsement it created is aimed at covering executives and directors whose companies could be placed under receivership of the FDIC under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The coverage is an endorsement to a company's director and officers "Side A" program, explains Machua Millett, senior vice president, general partner liability product leader in private equity and mergers and acquisition in Marsh's Financial and Professional Liability Practice (FINPRO).
The policy endorsement was developed by Marsh as its executives in the FINPRO practice examined the Dodd-Frank act, Millett says. The firm's aim was to take the initiative in understanding if "there were any additional liability issues" under the law.
"Rather than wait for an issue to arise we wanted to get out in front for our clients," he says.
Under the law and proposed rules that are still being formulated, any financial institution that is "teetering on insolvency" and is deemed to be of systemic risk to the financial stability of the country can be placed into receivership with the FDIC, he says.
When that happens, explains Millett, the FDIC is in a position to do two things:
- Repudiate contracts that it determines to be burdensome, including compensation agreements.
- An individual who is deemed substantially responsible for the failure of the company can be forced to return two years of compensation, whether there is a finding of negligence or not. This applies to current or former senior executives or directors.
Under the endorsement, Millett says executives would receive payment for compensation they were not paid if a contract is repudiated. It also covers the claw back provision of repayment of salary.
He says "the endorsement is broadly written to cover bonuses and all other forms of compensation and benefits."
The coverage does not cover cases of fraud or criminal behavior, Millett adds, but does cover acts short of that.
There are two underwriters of the program. Without naming them, Millett describes them as "two of the best known carriers in the D&O space." Both are highly rated. He adds that Marsh is in talks with other insurers who have expressed interest in underwriting the program.
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