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FDIC sues Chubb unit over failed-bank fidelity bond as statute of limitation approaches


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FDIC sues Chubb unit over failed-bank fidelity bond as statute of limitation approaches

TheFDIC, acting in its capacity as receiver for a San Juan, Puerto Rico-based bankthat failed nearly six years ago, filed a federal breach-of-contract lawsuitApril 25 against a ChubbLtd. subsidiary to recover damages the agency said stem from theinsurer's alleged failure to perform under two fidelity bonds.

Theformer ACE Insurance Co. allegedly issued management protection insurancepolicies with financial institution bond coverage for successive 12-month periodsended in November 2008 and November 2009 to R-G Premier Bank of Puerto Rico, according to the FDIC'scomplaint. The bonds, which each provide a single loss aggregate limit of $25million, allegedly provided indemnity for losses sustained by the bankresulting from dishonest or fraudulent acts of its employees.

ACEInsurance Co. filed its 2015 annual statement using the name The name changecoincided with ACE Ltd.'s January acquisition of Chubb Corp. in a deal thatresulted in the formation of Chubb Ltd.

R-GPremier Bank allegedly provided timely notice of a claim linked to $47.1million in loans approved directly or indirectly by Victor Irizarry Ortiz,former executive vice president of corporate banking and chief lending officer,but the insurance company allegedly refused to make payment for losses estimatedto approach $32.8 million in the aggregate. The loans had been issued toentities, businesses, family members or associates of a certain individual withan alleged "criminal history" to whom then-R-G Premier Bank PresidentRamon Prats Rodriguez had expressly prohibited lending.

TheFDIC alleged in the suit that Irizarry had engaged in various acts that weredishonest or fraudulent, including the circumvention of the lendingprohibition, perpetuating so-called straw-buyer schemes to conceal the actualbeneficiary of certain of the loans, directing the funding of the loans withoutmaking the required presentation to loan committees for approval,misrepresenting the true value of the loan collateral, misrepresenting orwithhold material information, and knowingly violating the bank's policies andprocedures. The agency further alleged that Irizarry obtained "improperpersonal gains" in connection with the supposedly dishonest or fraudulentacts in the form of "substantial cash, financial favors and free meals."

AChubb spokesperson declined comment on the complaint, which is pending in theU.S. District Court for the District of Puerto Rico.

Therelief sought by the FDIC includes the recovery of all damages it has sustainedas a result of the alleged breach of contract as well as pre- and post-judgmentinterest and various expenses. The FDIC has three years from the date of abank's failure to bring tort claims and six years to initiatebreach-of-contract claims under the Federal Deposit Insurance Act.

ThePuerto Rico Office of the Commissioner of Financial Institutions closed R-GPremier Bank on April 30, 2010, and named the FDIC receiver. The federalagency, in turn, entered a purchase and assumption agreement with a Puerto Rico unit ofBank of Nova Scotiaregarding essentially all the failed bank's assets and deposits.

TheApril 25 complaint does not mark the first piece of litigation the FDIC hasbrought in its capacity as R-G Premier Bank's receiver.

Itfiled suit in January2012 against certain former directors of the failed bank and their spouses,seeking recoveries of at least $160 million. The complaint also namedXL Specialty InsuranceCo., a unit of XLGroup Plc, as a defendant in connection with a directors andofficers liability policy that had been in force during a 13-month period endedin December 2010.

Areview of the docket in the U.S. District Court for the District of Puerto Ricoindicates that the case is one of the declining number of financial crisis-eraFDIC directors and officers complaints that remain pending.

FromJuly 1, 2010, through March 21, 2016, the agency filed 108 professionalliability suits against a total of 826 former officers and directors of failedbanks. Only three of those suits were filed in 2015, however, and the FDIC didnot file a single suit against failed-bank directors and officers during theperiod from July 2, 2015, through March 21, 2016, according to materials postedon its website.

TheFDIC said it had authorized suits during and subsequent to the financial crisisin connection with 151 failed banks and thrifts against 1,213 individuals fordirectors and officers liability. Of the filed complaints, the agency said, 92had been fully settled, and one resulted in a favorable jury verdict as ofMarch 18, 2016. At that time, the FDIC said it authorized 72 additionallawsuits for claims associated with alleged malpractice by accountants,attorneys and appraisers; alleged LIBOR suppression; and, like the ACEInsurance action, fidelity bonds.