Insurance Options For Lending Institutions

Bankers need professional liability insurance (BPL) for issues arising from the handling of money and other valuables belonging to the people they serve and do business with. There are different ways to add Bankers professional liability coverage to your current insurance program. Some of the most common approaches are buying a stand-alone BPL policy or adding BPL coverage to your directors and officers (D&O) policy. In many cases, you have the option of extending the coverage to all entity insureds and all employees of such entity insureds under a D&O policy.

All risk versus specified perils coverage

When buying a BPL policy, a financial institution should decide whether it wants to invest in a specified perils policy or an all-risk policy. These terms, while more commonly used when discussing commercial property insurance, also are used when deciding upon BPL coverage.

Quite some time ago, all services provided by a financial institution were covered under an “all risk” policy, unless otherwise expressly excluded by the policy. However, due to many in the insurance market experiencing big losses on such forms, several years ago BPL carriers switched to a “specified perils” policy form, where only the particular professional services listed as covered services would be insured. More recently, however, several BPL carriers began selling “all risk” policies again to further serve this market.

When buying BPL coverage, a financial institution should decide whether it wants lender’s liability coverage, and if so, whether it wants coverage for both front end and back end lender’s liability. “Front end” lender’s liability involves liability for wrongful acts committed in connection with the origination of a loan, the extension of credit, etc.

For example, the financial institution or its agent might improperly characterize the interest to be charged, or omit an item of interest, and could face liability under the Truth In Lending Act (“TILA”) or similar federal, state or local statutory or common laws.

“Back end” lender’s liability involves liability for wrongful acts committed in connection with the restructuring of, or foreclosure on a loan, extension of credit, etc. For example, the financial institution or its agent might unknowingly violate some statutory or common law, resulting in their inflicting injury upon a customer, client or another party. These types of exposures are common and illustrate the need for Bankers professional liability coverage to address these concerns.

 

Frank

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