US bank overseers clear D&O insurers from broad swathe of action on SVB

Directors & officers (D&O) policy underwriters likely escaped the noose, or the lion's share of the noose, on the decision by US authorities to expand support of depositors at failed banks well beyond the statutory minimums.

"The potential for D&O claims for startups would have been significant if the government had decided not to help depositors."

US regulators shut down lender Silicon Valley Bank, a regional lender highly focused on serving tech-sector and other start-ups plus their VC/PC backers, after depositors started to rush for the exits following word the bank had been forced to begin selling assets at a loss.

US regulators opted to go well beyond the standard $250,000 protection for retail depositors and extend a 100% deposit guarantee on all deposits by all clients.

That decision may have eliminated grounds for courtroom action by a broad swathe of the bank’s start-up clients plus their investors and the financiers of all sides, AM Best notes.

"Had the US government not stepped in to make all depositors whole, underwriters of directors' and officers' liability insurance for startups and venture capitalists, as well as the financial institution insured supporting such entities, would face legal claims," analysts at AM Best noted in recent research.

But whoever wrote D&O policies for leaders of the two banks taken down by regulators will nevertheless remain on the hook.

News agencies have already reported on the first individual and class action cases being formed against leaders of Silicon Valley Bank and Signature Bank.

An individual investor has filed a case against leaders of Signature Bank for having issued reassuring statements just days ahead of its resolution.

Shareholders at Silicon Valley Bank have filed a class-action suit against bank leadership for failure to warn on the types of risks that ultimately spelled the bank's demise.

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