What does mortgage errors and omissions insurance cover?
expired insurance (or insurance that has not been obtained)
inadequate insurance
title problems
Protects bank from loss when fire or all-risk insurance on real property held as collateral inadvertently has not been obtained or has expired. Generally, this insurance is not intended to overcome errors in judgement, such as inadequate coverage or insolvency of an original insurer.
The failure to obtain insurance on an automobile taken as collateral for a loan would be covered by what policy?
a. Omissions
b. Blanket Bond
c. Title Insurance
d. Nonfiling Insurance
Coinsurance and what its it based on? (replacement cost, loss, etc.) (3.4-4)
Most fire insurance policies contain "coinsurance" clauses, meaning insurance coverage must be maintained at a fixed proportion of the replacement value of the building, usually 80%. If a bank fails to maintain the required relationship of protection, all losses will be reimbursed at the lower ratio of the amount of the insurance carried to the amount required, applied to the actual value of the building at the time of the loss. When determining insurable value for fire insurance purposes, the typical base is the cost of replacing the property with a similar kind or quality at the time of loss.
Know how to calculate co-insurance coverage. An example given in the Premise and Fixed Asset sections of the Manual.
Requires insured to maintain insurance equal to 80% of the replacement cost. Only in the event that the insured carries the stated percentage, can it recover fully on the partial loss. Replacement cost $100M and bank carries $60M in coverage, a $50M loss would be covered to $37.5M. If $80M coverage maintained, loss would be covered to full amount up to $80M.
Equation for Coinsurance: (3.4-4)
$ insured/ replacement cost X Loss = $ Amount covered
% coinsurance required
60M / 100M X 50M = 37.5M
.80
A bank will not purchase any blanket bond insurance protection, the FDIC would?
1) Issue CMPs
2) Do Nothing
3) Issue an 8b
4) Contract for the blanket bond & include charges in the assessment
If RE collateral is in flood area, what does bank need to do?
· Get borrower to secure RE from flood
Fire and extended coverage does not cover rising water, steam boiler, and damage from a malfunction of the boiler.
Blanket Bond Insurance - know what is covered and what is not.
Standard Form #24 has two different limits of liability: a single loss limit of liability and an aggregate limit of liability.
Clause (A) - Fidelity: Covers losses as a result of dishonest or fraudulent acts by the bank's officers and employees, attorneys retained by the bank, and nonemployee data processors while performing services for the insured. Coverage of loan activity is severely restricted. Such losses are covered only if the employee acts in collusion with another party and the employee receives a financial benefit of at least $2.5M.
Dishonest or fraudulent acts are defined as acts committed by such employee with the manifest intent to cause the insured to sustain such loss and obtain financial benefit for the employee or another party (other than salaries or other benefits earned in the normal course of employment.
Clause B (on Premises) covers loss of property resulting directly from 1) robbery, burglary, misplacement, mysterious disappearance and damage; 2) theft, false pretenses, common law or statutory larceny.
Clause C (In Transit) is identical to coverage in clause B except that the property is covered while in transit. (Must be in the custody of a person acting as messenger of the bank).
Clause D (Forgery or Alteration) provides optional coverage for loss through forgery or alteration of, on or in checks, drafts, acceptances, and other instruments. Note: items received as a transmission through wire transfers are NOT covered.
Clause E (Securities) provides optional coverage for loss resulting from the insured having, in good faith, for its own account or for the account of others, acquired, sold or delivered, or given value.
Clause F (Counterfeit Currency) covers loss resulting from the receipt by the insured in good faith, any counterfeit or altered money of the US or Canada or any foreign country in which he insured maintains a branch office.
According to the bank's blanket bond, how many days are allowed to report?
A loss must be reported to the bonding company within 30 days after discovery. Failure to do so may jeopardize coverage of that loss. Coverage of any employee automatically cancels as soon as the bank has knowledge of any dishonest or fraudulent act committed by that employee.
What is excess dishonesty coverage for? (4.4-5)
Purpose is to extend the basic protection provided under the blanket bond in areas where the dollar volume of assets of exposure is particularly high. Usually written in multiples of $1MM. Most common -- form #28. FDIC strongly recommend banks have unless blanket bond is sufficiently large enough to = or exceed this coverage.
What would be covered if a Form 24 policy with clauses A through F were in force? (4.4-2)
· documents in transit with bank's courier
· etc.
A Standard Form 24 policy is the blanket bond. All of those listed in the question would be covered. Clauses D & E are listed as optional. Key to coverage is "good-faith" acceptance. D does not cover Electronic fund transfers.