By Scott Simmonds, CPCU, ARM, CMC
Yesterday NCUA asked Congress to extend the statute of limitations on charging directors and officers of failed credit unions to as long as 10 years, according to a report by The Credit Union Journal (subscription required).
While there is a great deal that would need to be done before this change could become law, I thought I would chime in relative to directors' and officers' insurance, the topic of my next online "Insurance Matters" column for CU Management magazine. D&O insurance responds to claims made during the policy period. If no policy is in force when the lawsuit is filed, there is no coverage. The "wrongful act" could have been years before while coverage was in force. But no coverage on the date of lawsuit, no coverage.
So, to the idea of a civil suit filed by NCUA years after a CU is closed, there is probably no insurance coverage available for the directors or officers. It's possible that the acquiring entity will provide some extension of coverage. However, that will probably not extend beyond a year or two.
In rare instances a financial institution being acquired has the foresight to buy an extended "tail" so that the directors and officers will have coverage for late-blooming lawsuits. The longest I have seen is 6 years.
In light of NCUA's request, if your entity is on its way into some kind of oblivion, now might be a good time to look into buying a long tail to your directors' and officers' insurance. While you're at it, check into how the CU's indemnification agreement works too.
Scott Simmonds, CPCU, ARM, CMC, is The Unbiased Insurance Guy™ who consults on but does not sell insurance. Visit his Web site, read his monthly "Insurance Matters" columns or follow him on Twitter.
