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4000 - Advisory Opinions

Insurance Coverage of Litigants' Funds Held by a Federal Court


October 3, 1990

Claude A. Rollin, Senior Attorney

This is in response to your letter of August 30, 1990, in which you request clarification of the insurance coverage provided for funds held by you in a custodial capacity for litigants pending the adjudication of their cases. These funds are paid into the Registry Account of the Court and are handled in accordance with United States District Court Local Rule 280.

The opinion on deposit insurance given to you by the branch manager of *** Bank is correct. These accounts are not insured as the funds of a public unit, but rather as funds held by a custodian. Pursuant to section 330.6 of the FDIC's newly revised deposit insurance regulations (to be codified at 12 C.F.R. §330.6), funds owned by a principal or principals and deposited into one or more deposit accounts in the name of an agent, custodian or nominee (other than an insured depository institution) shall be insured as if deposited in the name of the principal(s). Thus, each Registry Account will be insured for up to $100,000, separately from any other accounts maintained by the Court (e.g., operating accounts) with *** Bank.

Certain recordkeeping requirements, however, must be met in order to obtain this "pass-through" insurance. These requirements are set forth in subsections 330.4(b)(1) and (2) of the FDIC's recently amended regulations. First, the deposit account records of the depository institution must disclose that the funds are held by the depositor in a representative capacity, typically by indicating "custodian" or "agent" on the signature card. Second, the records of either the depositor or the depository institution must disclose the ascertainable ownership interest of each beneficial owner in the account. These records must be maintained in good faith and in the regular course of business.

When these requirements are satisfied, the beneficial owner's interest in the custodial deposit account will be added to any other individual deposit accounts owned by him or her in the same depository institution and insured up to $100,000 in the aggregate.

For your information, I have enclosed a copy of the FDIC's amended deposit insurance regulations. Please write or call me (202-898-3985) if I may be of further assistance.

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