Hunton Insurance Recovery Blog

Whether a policyholder’s losses are “direct” or “indirect” can be coverage-determinative. Most financial institution bonds exclude “indirect” or “consequential” losses. A recent decision in Fed. Deposit Ins. Corp. v. Arch Ins. Co., No. CV C14-0545RSL, 2017 WL 5289547 (W.D. Wash. Nov. 13, 2017) addressed the issue of “direct” versus “indirect” losses in a dispute under a financial institution bond issued by Arch Insurance Company (Arch) to Washington Mutual Bank (WaMu). The court held that WaMu’s losses resulting from its purchase of fraudulent loans were “direct” losses, and that WaMu’s sale and contractual obligation to repurchase the fraudulent loans did not convert its losses from direct to indirect.