WARREN, N.J.-The economic climate may affect potential risks the CU believes are otherwise insured, according to one analyst.
"An insurable risk that easily could be impacted by the economy, first and foremost is employment practices liability," said Christine Wartella, VP for the Chubb Group of Insurance Cos. "It protects the organization and its managers against liability for certain violations of employment law or other wrongful employment practices."
In cases of workforce reductions, for instance, if done without regard for the regulations and laws that impact employment law, it could prompt a lawsuit or a claim if people feel they were victims of employment discrimination, wrongful termination or retaliation.
"If an employed individual loses a job and can replace it easily they might not be inclined to pursue a claim against their former employer; but in this economy where a new job might prove elusive, that same individual might be reaching for a lawsuit against their former employer if they believe they were subject to wrongful decisions or activities during the process," she said.
Fiduciary liability is another area of risk. To save expenses, CUs might reduce or eliminate employees' benefits, but employers must act within the contractual limits of the benefits plans they offer when making any changes. "If credit unions cut back on expenses by eliminating or reducing a benefit, it may trigger a suit or claim," she said. "Or, even absent a change to a benefit plan, lawsuits could come, for example, from participants in a 401(k) plan who see their balances cut in half and conclude that the plan did not offer appropriate fund choices."
Liability is triggered by an allegation, Wartella warned, reminding that actual wrongdoing is not the issue. "Defense of a lawsuit can be very costly. A fiduciary liability insurance policy covers the liability of the individual fiduciaries of the plan and the credit union as the sponsor organization of the plan." Among other risks, as outlined by Wartella:
* Bankers' professional liability coverage, sometimes known as as errors and omissions liability protection, can be strained due to the elevated level of debt collection and foreclosure-related activities, which can prompt claims and lawsuits, such as wrongful foreclosure action. "In my experience, credit unions tend to buy very low limits for professional liability compared to a similar sized community bank," Wartella said. "Credit union boards and executives might want to ask themselves whether, given the increased risks in this environment, their credit union is purchasing limits sufficient for current levels of risk."
* The Directors & Officers coverage may be called upon in the event a CU fails, including instances of conservatorship in which some party might file a claim. Wartella cautioned that a history of little litigation shouldn't allow a false sense of security, especially in the current economy. "In this worsening economy, with members under increasing economic pressure, assertions of credit union liability are likely to become more frequent," she predicted. "Assessment of risk and assessment of coverage in the face of an economy that none of us can control is a matter that boards don't spend enough time on. People take it as a given that insurance is purchased, so it must be good."
