Loan Loss Claims Under E&O and D&O Policies
Loan Loss Coverage Under Financial Institution Bonds
There are two major distinctions between the coverage provided by a fidelity bond and that provided by a traditional professional liability policy: (1) a fidelity bond covers direct losses to an insured, while a professional liability policy covers liability for claims made by third parties against an insured; and (2) a fidelity bond covers losses resulting from an insured's employee's intentional dishonest acts while a professional liability policy excludes coverage for the intentional fraudulent acts of an insured or its employees. In the context of a "loan loss" claim, professional liability policies may arguably provide coverage under a number of theories depending on the facts of the claim and the creativity of the plaintiff's attorney.
This chapter is intended to assist the fidelity claims professional in analyzing the coverages and exclusions of professional liability policies as they might have application to loan loss claims. To this end, the article will first address the traditional distinction between liability policies and fidelity bonds. It then discusses the scope of coverage provided under typical professional liability and directors and officers policies (D&O), and the potential impact to fidelity and liability insurers arising out of the recent increase in claims related to subprime mortgage lending.
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