  When an insurance note is also a derivative a serious problem arises because
a derivative must be fulfilled immediately. This feature of derivatives
prevents claims processing procedures that screen out ineligible claims. This,
in turn, creates a perverse incentive for insured holders of notes to commit
acts that result in payment. This problem first surfaced with CDS contracts,
which are part of a class of loan insurance I term a default insurance note.
  Without an address to this problem, within the average range of returns for a
large venture capital portfolio, a venture-bank makes less money the better
their investments do, in a continuous function. The highest rate of return is a
total loss, 64% more than a top portfolio.
  Here, a strategy for removing this perverse incentive is defined, consisting
of a clawback lien that returns part of the payment value as a lien on the firm
that is the beneficiary of the insurance. This is presented as the final major
component for implementing a default insurance note system so that
venture-banking can operate to maximum benefit. Removing the perverse incentive
also minimizes disincentive for underwriters to deny DIN coverage to new
venture capital firms, or to those firms that have historical earnings which
are below average.
