Know the risks - Zurich

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Liabilities to third partiesLiability to borrowersCases brought by borrowers are often referred to as “lender’s liability” cases. Suchsuits are normally brought against the institution itself but, in certain circumstances,may be brought against directors as well. Some examples of typical “lender’sliability” cases are as follows:• A suit by a borrower against a loan officer alleging misrepresentation – for example,that the officer promised to extend more credit or to grant an extension of time andthat when the officer failed to do so, the borrower’s business suffered.• Improper foreclosure or sale proceedings, including allegations that a loan officerfailed to conduct a “commercially reasonable” sale.• Violation of federal or state truth-in-lending laws.• “Slander of credit” cases arising out of a loan or credit officer’s statements to athird-party that effects a borrower’s credit.• “Domination and control” cases. Lenders who exercise domination and control overa borrower’s business to the detriment of the borrower or persons dealing withthe borrower may be liable for duress, economic coercion and interference withcorporate governance.• “Bad faith” or breach of implied covenant of fair dealing.Liability to employeesDirectors are subject to liability for violations of laws protecting employees againstunlawful discrimination based on race, age or sex, as well as wrongful terminationand sexual harassment. Naturally, when corporate officers participate in a violation ofan employee’s civil rights, they face potential personal liability. However, even if notdirectly involved in the wrongdoing, directors and officers may be liable under stateand common law for claims related to wrongful discharge, retaliation, workplaceharassment, defamation, infliction of emotional distress, invasion of privacy, andnegligent hiring, training, or supervision. Federal class action claims pursuant to TitleVII typically can be brought only against the corporation as the employer and notagainst any directors or officers. While most employment claims can be resolvedon an individual basis for relatively small sums, claims brought by senior officerswith high compensation or lucrative stock options can be difficult and expensive todefend and resolve. In addition, directors face far more significant potential exposurewhen their board decisions are perceived to have negatively impacted a class ofemployees, such as with large scale reductions-in-force.Liability to employee benefit plan participantsOfficers who serve as fiduciaries of their company’s employee benefit plans may benamed as defendants in suits brought by plan participants for their alleged loss or19Financial institutions guide
“In recent years, there hasbeen a marked increase inthe frequency and severity ofERISA class-action litigationagainst directors and officersfollowing a significant drop ina company’s stock price.”denial of benefits. Directors and officers may also face liability under the EmployeeRetirement Income Security Act of 1974 (ERISA) when they function as fiduciaries,serve on committees that oversee or monitor the plans, or issue statements that mayinfluence a plan participant’s decisions with respect to the plan.In recent years, there has been a marked increase in the frequency and severity ofERISA class-action litigation against directors and officers following a significantdrop in a company’s stock price. The lawsuits are typically filed by and on behalfof participants and beneficiaries of a company’s retirement plan when the planowns company stock as an investment option. Plaintiffs in these lawsuits generallyallege that directors and officers breached their fiduciary duties under ERISA by (i)allowing the plan or its participants to purchase of company stock as an investmentoption when they knew or should have known that the stock was not a prudentinvestment, or (ii) misrepresenting or failing to disclose to the plan participantsmaterial information about the company.20Financial institutions guide
Page 6 and 7: • Reviewing how appropriate finan
Page 8: While the scope and application of
Page 11 and 12: agents, or servants of the [bank] t
Page 13 and 14: Sarbanes-OxleyThe Sarbanes-Oxley Ac
Page 15 and 16: duty; (2) that such violation, prac
Page 17 and 18: • employ any device, scheme or ar
Page 19: Claims by or on behalf ofthe instit
Page 23 and 24: • Copies of regulators’ examina
Page 25 and 26: Most indemnification statutes disti
Page 27 and 28: • An institution may be insolvent
Page 29 and 30: ConclusionCorporate indemnification

Know the risks - Zurich

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