Ex-Directors of First Republic Bank Suing Insurer over Federal Charges
DALLAS -- Former directors and senior officers of the failed First RepublicBank Corp. have sued their insurance company for refusing to shield them from a $100 million federal lawsuit.
The suit comes at a time when some insurance companies are arguing that their policies shouldn't necessarily protect bank officers and directors from claims filed by government regulators.
The First Republic suit, lodged against National Union Fire Insurance Co. of Pittsburgh, may prove a test of that argument.
As the government steps up litigation against officers of failed banks and thrifts, insurance carriers are clearly concerned. That's why the insurers have been increasingly writing exclusions into their policies.
Indeed, such an "exclusion on indemnity" against government lawsuits was written into the policy that covered the 38 former officers and directors of First Republic. This clause may make it difficult for First Republic to prevail in its suit.
The Federal Deposit Insurance Corp. filed in late July its $100 million suit against the First Republic group, alleging violations of federal banking law and breach of fiduciary duties.
Among the defendants named in the FDIC suit is Charles Pistor, former chairman of First Republic's lead bank and a former president of the American Bankers Association.
Also named were Gerald Fronterhouse, First Republic's former chief executive, and H.R. "Bum" Bright, a former director who was an architect of the ill-starred 1987 merger between RepublicBank Corp. and InterFirst Corp.
The merged First Republic failed in July 1988, little more than a year after it was formed. The government sold the franchise to NCNB Corp. of Charlotte, N.C., in a deal that cost the FDIC an estimated $3.4 billion.
Early this summer, National Union paid $19 million in settlement of investor lawsuits against First Republic's former officers and directors. First Republic's bankruptcy estate is in the process of liquidating creditor claims, and it is unclear whether the estate will absorb any of its former officers' defense costs in the FDIC litigation.
Some observers have questioned the FDIC's lengthy delay in filing a civil suit against First Republic's officers, who stand accused of misdeeds allegedly occurring five years ago. But the agency has said such civil action "was inevitable," given the huge costs of the First Republic rescue.