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4000 - Advisory Opinions

Insurance Coverage Afforded Funds Held by Custodian Pending Resolution of Class Action Law Suit


August 10, 1992

Mark A. Mellon, Attorney

This is in response to your letter of July 9, 1992 wherein you state that you wish to ascertain the extent of coverage under FDIC insurance regulations for custodial accounts which hold funds pending the resolution of a class action law suit. The names of the class action claimants and the amounts which may possibly be due to them will not be known at the time of deposit. You state further, however, that this information will be obtained through a claims administration process which may last from one to two years. You ask whether the sums due to the claimants will be entitled to separate coverage under FDIC insurance regulations.

Under our insurance regulations, 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). 12 C.F.R. § 330.6(b). Certain requirements must be met, however, in order to obtain this "pass-through'' insurance. The deposit account records of the insured 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. 12 C.F.R. § 330.4(b)(1). If this requirement is satisfied, the details of the custodial relationship and the interests of the other parties in the account can then be determined either from the deposit account records of the insured depository institution or from the records of the custodian (or some person or entity whom the custodian has engaged to perform that task). 12 C.F.R. § 330.4(b)(2).

If it becomes necessary to make insurance determinations for the deposits of your institution and the claims administration process has identified the class action claimants and the sums due to them, insurance should pass through to the claimants in the right and capacity that they own the funds up to the statutory limit of $100,000, provided that the requirements outlined above are complied with. If this information is not available at the time of the insurance determinations, however, and the precise ownership of the funds in the custodial accounts can not be ascertained, the total insurance for these accounts would be limited to $100,000. The amount of deposit insurance will therefore turn on the status of the class suit at the time of default of the insured institution rather than at the time of deposit as you suggest in your letter.

I hope that this letter is responsive to your query. Please do not hesitate to contact me if you should have any questions about this or any other matter.

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