FDIC filed a lawsuit against an insurer that refused coverage for three banks

Keeping a bank on solid ground is much more difficult than the average person may think. To maintain the stability of this financial institution, one must have a satisfactory insurance plan with a helpful insurer. For example, many businesses and organizations have corporation liability protection to defend their company.

The First National Bank (FNB) was having a difficult time in the second half of 2008 and had to look for another insurer after June.  Until then, this bank was insured by Chubb Corp. FNB executives began searching for another insurer since the policy with Chubb Corp was ending.

According to the Phoenix Business Journal, FNB was having difficulties in finding a new insurance company that would offer them another policy. Eventually the insurer Lloyd's of London decided to give them a chance and agreed to $10 million in coverage in exchange for a $200,000 premium. This agreement was set up in June of 2008. By July of that year, the banks owned by FNB – FNB Nevada, FNB Arizona, and First Heritage Bank – closed down. The Federal Deposit Insurance Corporation (FDIC) accused these three banks of providing mortgages without receiving income verification, which, in the end, led to the downfall of these banks.

FNB had to share with Lloyd's of London that it was having issues with the Federal Deposit Insurance Corporation (FDIC). After informing Lloyd's of London, this insurer denied coverage and refused to provide defense costs.

At this point, FNB had to settle claims and, in May of 2011, seven executives from the First National Bank Arizona went to New York to come to an agreement with the FDIC. What happened next is that the FDIC filed a $43.5 million lawsuit against Syndicate 2003 at Lloyd's of London, alleging that refusing to cover FNB under the $10 million policy left the FNB executives to defend the claims themselves without having the insurance coverage they originally paid for.

In Phoenix, businesses that are in the midst of insurance problems should consider speaking to a lawyer for small business.

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