Bank shareholders make a claim for mismanagement against

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Ray, Rhea, Ryan and Pauline are directors of a bank. Pauline had been putting pressure on the chief loan officer to approve bank loans to Pauline’s friends, though the chief loan officer had concerns about the credit-worthiness of these customers (which is why Pauline had to put pressure on her.) These loans eventually go bad and are not repaid. The loans were large enough that the loss is material and thus created a bank loss for the year. Turns out part of the loans made to the customers included loan broker commissions to Pauline. (Some might call those commissions bribes or kickbacks.)

a. Bank shareholders make a claim for mismanagement against the directors. Explain how the D&O policy (which has all three coverages: A, B & C) should handle the claims against each of these directors, and the relevant insurance policy provisions.

b. If the bank regulators of the above bank investigate this and also subpoena documents and witnesses and issue a fine, how should the D&O policy handle this?

c. If the bank is insolvent and unable to indemnify the directors, how should the D&O policy respond to these claims?

Reference no: EM131845363

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