Bank Insurance Mistake – Shared Directors and Officers Limits

Do lender liability or employment practices liability claims reduce your coverage for future Directors’ and Officers’ claims?

Many management liability policies have an aggregate limit that is equal to the limit of coverage for directors’ and officers’ claims – this has the effect of reducing coverage for future claims. For example, if you have a policy with a $5,000,000 aggregate limit, a $5,000,000 directors’ and officers’ limit, a $2,000,000 employment practices liability limit, and a $2,000,000 lender liability limit, then a $1,000,000 employment practices liability claim means there is only $4,000,000 available to pay a later directors’ and officers’ liability claim.

This is a common error I find in the bank insurance programs I review for my clients. Your board might think they have $5,000,000 of coverage but they really don’t.