When to Sign and When Not to Sign

Fall 2011 • Lockton Companies, LLC

Insurance companies frequently ask credit unions to complete warranty statements as part of the application process for either new or renewal policies. So what is a warranty statement and why should you think twice, even three times, before completing it?

Warranty statements mainly apply to Directors and Officers, Employment Practices Liability, Fiduciary Liability and Professional Liability policies. Because insurance companies want to be sure they are not walking into a claim (the act has already occurred, but a claim has not yet been reported) they often require credit unions to provide a warranty statement. It is a very broad statement typically required to be signed by the CEO/President, vowing that "no person or entity proposed for coverage is aware of ANY act, error or omission which MIGHT result in a claim." If the answer is "yes," the insurance company may specifically exclude future claims arising out of that act, error or omission. Failure to respond truthfully can also result in future claims not being covered.  The insurance company may even use its ultimate weapon and rescind the policy-return your premium and act as if the policy never existed.

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