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Entering Financial Hurricane Season

Apr 6, 2023

The official start of Hurricane Season isn’t until June, but it may be more than the Southeast that’s facing a storm this summer and fall. With interest rates expected to peak over the next two months1 , we may start to see the collateral effects of bringing down inflation come through…

When recessions occur, they present unique risk exposures for the banking sector. Some of these present immediately – financial distress, material stock drops and fraud; others lag, like allegations of improper foreclosure, debt collection lawsuits and regulatory investigations. Each risk carries its own coverage considerations that must be contemplated well in advance of a claim. To continue with the hurricane metaphor, the time to check the hatches and fix the roof is when the storm is forming, not when it’s overhead. At CAC, we’re recommending banking & lending institutions “stress test” their policies today.

Here are some of the key questions you should be asking your broker:

  • To what extent does our D&O and E&O policy respond to regulatory matters? What exclusions or limitations to loss apply in these actions?
  • Does our D&O and E&O policy insure loss that would typically be viewed as restitution or disgorgement?
  • To what extent do our policies afford coverage for fines and penalties?
    • Does it only respond for Individuals or is the Entity protected as well?
    • What if we settled the matter before a fine or penalty was determined?
  • Does our EPL policy have an exclusion for allegations of third-party discrimination, violations of fair housing laws, or redlining?
  • Does our policy include all allegations of discrimination in the definition of third-party wrongful act or claim?
  • What carrier relationships do you personally have to achieve the best possible outcomes both at renewal and the time of a claim?
  • Does our policy’s definition of loss include injunctive relief? We’d welcome the opportunity to share our views on what the responses to the above questions should be.

We’d welcome the opportunity to share our views on what the responses to the above questions should be.

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