Law Office of John S. Palmer Attorney at Law

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FDIC Limits

Posted Monday, December 17, 2012 by John S. Palmer

The amount of FDIC insurance coverage available for deposits held at an insured bank depends on numerous factors. Different rules apply to individual accounts, joint accounts, qualified retirement accounts, revocable and irrevocable trust accounts, and accounts held by an entity such as a corporation or partnership.

The standard deposit insurance amount is $250,000 per depositor, per insured bank. However, because the FDIC provides separate insurance coverage for a depositor’s funds at the same insured bank if the deposits are held in different ownership categories, it is possible, for example, for a married couple with children to structure their deposits so that they are insured for well over $1 million in deposits at a single bank. An excellent explanation of the rules can be found in this brochure available on the FDIC website.

Anyone thinking about configuring accounts so that insurance coverage is available for deposits in excess of $250,000 at a single bank should know that the Washington Supreme Court recently held that bank officers and employees who act in good faith are not personally liable to a customer for providing incorrect advice regarding FDIC limits.

The plaintiffs in the case sued specific bank officers and employees individually after the bank failed, resulting in a $500,000 loss. The plaintiffs had opened 7 accounts totaling $3 million after asking the bank’s CEO and a financial services officer how the accounts could be structured so the deposits would be fully insured by the FDIC; in response, the financial services officer had prepared a chart showing how the bank could provide $3 million in coverage.

A few months after opening the accounts, the bank went into involuntary receivership; the FDIC was appointed receiver and determined that $500,000 of the plaintiff’s deposits were uninsured. The parties disagreed over whether the plaintiffs were provided good advice or failed to follow it correctly, and whether the plaintiffs were advised to independently verify FDIC coverage. However, the plaintiffs did not allege that they were intentionally misled.

The Washington Supreme Court found that holding the bank officers and employees liable for the plaintiffs’ loss would be contrary to established law regarding acts committed by individuals on behalf of a separate business entity, and noted that transactions between a depositor and a bank typically fall under the general rule that “participants in a business transaction deal at arm’s length” and in that situation “an individual has no particular duty to disclose facts nor any particular right to rely on the statements of the [other] party.” While in certain situations a fiduciary or quasi-fiduciary relationship may exist that allows one party to rely on the statements of another, to the extent any such relationship existed here it was between the plaintiffs and the bank itself.

Furthermore, the plaintiffs did not allege that the bank officers or employees knowingly made any misrepresentations about FDIC coverage, and prior cases finding officers or employees personally liable for the torts of a corporation involved individuals who knowingly committed wrongful acts or directed others to do so. The court found that to broaden this liability to officers and employees who act in good faith “could expose employees of banks and other industries to severe personal liability for honest mistakes.”

Annechino v. Worthy, Washington Supreme Court docket no. 86220-6, decided October 18, 2012.

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