Ex-WesCorp Directors May Be On Hook For Legal Fees
LOS ANGELES-A dozen former executives and directors of WesCorp FCU being sued by NCUA over the failure of the one-time $34-billion corporate credit union could be left holding the bag for millions of dollars in legal fees under a clause in their Directors and Office liability insurance.
Should that be the case, it could have a significant effect on the number of CEOs and other credit union managers willing to serve on the boards of corporate credit unions moving forward, several sources suggested to Credit Union Journal (see related story, page 34).
In the case of WesCorp, a Directors, Volunteers and Employees policy, better known as a Directors & Officers policy, was in effect at the time the lawsuit was initially filed and the WesCorp defendants sought to invoke the coverage, according to NCUA.
The insurance carrier, believed to be CUNA Mutual Group, cited an exclusion in the policy for investment losses and informed the defendants that the exclusion limited its liability under the policy to no more than $100,000 in defense costs incurred in defending the suit, after the defendants had satisfied a deductible of $500,000. The ruling, if it withstands a potential legal challenge by the directors and officers, could leave those individuals responsible for millions of dollars in legal fees if the suit becomes contracted, as expected.
CUNA Mutual Group declined to confirm whether it holds the D&O policies on the WesCorp figures, but cited recent changes in its coverage for corporate credit union directors and officers.
"During the renewal process in January 2010, CUNA Mutual offered all of our corporate credit union customers expanded coverage as it relates to defense costs for investment-related losses," said Chad Nitschke, vice president, Credit Union Protection. "This was done in an effort to provide more protection for directors and officers in a litigious environment, beyond the $100,000 limit. In some situations where there were pending claims this coverage was offered retroactively to prior policy periods. Some customers purchased this enhancement, while others did not."
NCUA has filed civil claims against the WesCorp figures, including former CEO Robert Siravo, former Chief Financial Officer Todd Lane, and 11 former board members, claiming their negligence and breach of fiduciary duties caused the failure of the former corporate giant, which will cost NCUA and credit unions and estimate $7 billion.
NCUA is expected to follow the lawsuit by filing bond claims with the WesCorp insurer, as it will do in the failure of U.S. Central FCU. In that case, NCUA has filed an advance notice of claim against former executives and directors of the failed corporate with U.S. Central's insurer, Travelers Casualty & Surety Co.
The defendants in NCUA's WesCorp suit are Siravo, Lane, Timothy Sidley, former chief risk officer, Thomas Swedberg, former head of human resources, Robert Burrell, former executive vice president and chief investment officer, and 11 directors.