Section 9.35 Regulatory Exclusion

• Library: Insurance Practice 2015

A typical regulatory exclusion was examined in St. Paul Fire & Marine Insurance Co. v. FDIC, 765 F. Supp. 538, 541 (D. Minn. 1991), aff’d, 968 F.2d 695 (8^th Cir. 1992). It states:

[T]here is no coverage for any claims made against the Directors or Officers of the [company] based upon or attributable to any claim, action or proceeding brought by or on behalf of the Federal Deposit Insurance Corporation, Federal Savings and Loan Insurance Corporation, any other similar depository insurance organization, or by any other Federal or State Regulatory Agency; whether such claim, action or proceeding is brought in the name of such Regulatory Agency or by or on behalf of such Regulatory Agency in the name of any other entity.

Exclusions of this nature have been the subject of considerable litigation as a result of bank and thrift failures. The courts have often chosen to enforce the regulatory exclusion, but exclusions have been invalidated for various reasons. See David J. Marchitelli, Annotation, Validity, Construction, and Effect of “Regulatory Exclusion” in Directors’ and Officers’ Liability Insurance Policy, 21 A.L.R.5th 292, 304 (1994).

In FSLIC v. Oldenburg, 671 F. Supp. 720 (D. Utah 1987), the court held that the regulatory exclusion unduly hampered the Federal Savings and Loan Insurance Corporation (FSLIC) in performing its statutory duty to collect and administer all obligations owed to or owing by the insolvent institution. Id. at 723–24. A similar rationale was used to strike down the exclusion in Branning v. CNA Insurance Cos., 721 F. Supp. 1180, 1183–84 (W.D. Wash. 1989). The supreme court of Colorado...