regulatory agency exclusion

The regulatory agency exclusion is an exclusion found in directors and officers (D&O) liability policies that precludes coverage for suits by national and state banking authorities against directors and officers.

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The exclusion came into use during the mid-1980s when, in the wake of widespread financial institution insolvencies, regulators such as the Federal Deposit Insurance Corporation (FDIC) took control of failed banks. In their attempts to recover lost assets, regulators frequently initiated lawsuits against former directors and officers, recognizing that D&O policy proceeds would be available. However, the exclusion is no longer common, since the kinds of losses experienced during the savings and loan crisis of the late-1980s are much more unusual and therefore do not pose the same type of large-scale underwriting exposure as was once the case.