Exclusions Aren’t the Only Way an Insurance Company Can Deny a Bond or D&O Claim
The Financial Institution Bond, the Directors and Officers Liability policy, and now the Cyber Liability policy, are essential coverages for ANY bank. These policies cover a great number of exposures that, if not covered, could financially ruin a bank. However, there are actions that a bank must take (or not take), that may allow the insurance company to deny an otherwise legitimate and covered claim. Here are just a few examples:
Make sure all statements in your application(s) are accurate to the best of your knowledge. While there are a few applications that are “warranty statements,” almost all require answers to the best of your knowledge. Making a “material misstatement,” whether it applies to a loss or not, could void the entire policy.
Watch Out for Time Bombs
Both the Bond and the D&O policy contain time restraints. You are required to report a claim “as soon as practical,” or at least within thirty (30) days of knowledge of the claim. Sometimes it is just an incident that needs to be reported. This can be very tricky. Are you required to report ONLY a loss OR suspicious circumstances that might lead to a loss? Look at the definitions section of your policy(ies) to see how a notice is defined. If you happen to miss a deadline, the insurance company can deny an otherwise legitimate claim.
Follow the Procedures
Both policies contain instructions on how a particular activity is to be done. The procedures for covering electronic funds transfers are clearly stated in all Financial Institution Bonds. While there may be slight differences from one insurance company to another, most Bonds will have a “callback” amount over which the Bank must “callback” the customer and request a confirmation that the transfer is legitimate. FOLLOW THIS PROCEDURE TO THE LETTER. If you do not follow every part of this procedure, the claim will most likely be denied.
What’s in a Name?
Insurance companies are very particular about who they insure. If you are not named in the policy, do not assume the insurance company knows you should be. More than a few times, I have found the holding company of a bank was not named in the policy. In such instances, the insurance company could (and probably would), deny a claim against the holding company AND any of its subsidiaries (except for those listed in the policy). The sad thing is unless the subsidiary is involved in a non-banking activity, there is little, if any, the cost for adding another named insured to an insurance policy.
Usually, when you think of what is not covered, you look to the Exclusions. While the Exclusions are a good place to start, “the devil is in the details” of the insurance policy itself. You might actually want to read the policy!