During most of my career working on D&O liability issues, if we were talking about D&O claims, we were talking about developments in the U.S. In recent years, this generalization is increasingly untrue; starting with the global financial crisis now more than a decade ago, investors, regulators, and others throughout the world have sought to hold companies and their directors and officers accountable. The topic of D&O claims is no longer (and has not been for a while) just about the U.S. Indeed, as I have noted elsewhere on this site, the global rise of collective investor actions may be one of the most important stories in the D&O liability arena. With the global rise in directors’ and officers’ liability actions has come a series of questions about the availability of indemnification and insurance for the targeted individuals in their home countries or in the countries where the claims are pending, questions that often may be challenging to try to answer.
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Guest Post: Boardroom Guide to D&O Insurance
On this site, I try to keep my readers up to date on the latest developments in the world of directors’ and officers’ liability and insurance. Every now and then, it is worth taking a step back and asking the basic questions, such as, what should directors know about their D&O insurance? The following guest post, written by Francis Kean and Noona Barlow, Partners in the Financial Lines team at McGill and Partners, in conjunction with Airmic, answer some of the basic questions. This Guide was originally published by Airmic to coincide with its 2021 annual conference and is available on its website. The article’s authors are based in the UK and so the article is written from a UK perspective, but many of the article’s insights are largely applicable in the US as well. I would like to thank the authors and Airmic for allowing me to publish this article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is the authors’ article.
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Guest Post: Director’s Liabilities: Prevention and Protection – Ports of Call for Relief
In the following guest post, Umesh Pratapa takes a look at directors’ liability issues under Indian law, and also examines the protections that are available for directors as well. Umesh is a Consultant – Liability Insurance, in India. Umesh’s article was originally published in the July 2020 issue of “Director Today”, a monthly journal of the Institute of Directors (IOD), India. Reproduced with the kind permission of the publisher, Institute of Directors, India. I would like to thank Umesh for allowing me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Umesh’s article.
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Do D&O Insurance Policyholders Need Local Policies in Foreign Jurisdictions?
Most primary D&O insurance policies are written on a global basis, meaning that the policy’s coverage will respond to claims wherever they arise, anywhere in the world. However, in recent years, as a result of tax, regulatory, indemnification, and currency questions, both insurance buyers and insurers have become concerned about the potential need for companies to have locally admitted policies in place in foreign jurisdictions where the companies have operations. The question about whether or not a company should have a local policy has become a perennial issue. In an October 16, 2019 post on Woodruff Sawyer’s blog entitled “Foreign Subsidiaries and D&O Insurance: Are you Prepared to Place?” (here), Jane Njavro takes an interesting look at the issues surrounding these questions. As discussed below, these questions raise a number of recurring concerns.
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Limits on Indemnification and Advancement for Delaware Corporations
Among the most crucial issues in the world of directors and officers liability are the related questions of indemnification and advancement. Since so many companies are incorporated in Delaware, the laws of indemnification and advancement in Delaware are particularly important with respect to scope of protection available for directors and officers. In the following guest post, Paul Lockwood and Art Bookout of the Skadden, Arps, Slate, Meagher & Flom law firm take a look at these issues, with a particular focus on limitations under Delaware law on indemnification and advancement rights. A version of this paper previously was published as an AIG White Paper. I would like to thank the authors and AIG for allowing me to publish this article as a guest post. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Paul and Art’s article.
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Guest Post: Do You Know Who Your Corporate Officers Are? An Overlooked Issue That Can Have Serious Consequences
Directors and Officers liability insurance policies of course protect corporate directors and officers. Similarly, advancement and indemnification typically are available to corporate directors and officers. But who is an “officer”? As I have discussed in prior posts on this site (more recently here), this is an important question that can have significant implications. In the following guest post, Rachel W. Northup and Steven M. Haas of the Hunton & Williams law firm take a look at this important question and the significant issues it can involve. I would like to thank Rachel and Steven for their willingness to allow me to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to publish a guest post. Here is Rachel and Steven’s guest post.
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D&O Insurer Must Continue Defense Expense Reimbursement Post-Merger
An acquired bank’s D&O insurer’s defense cost obligation to the bank’s directors and officers in connection with merger-related litigation continued after the merger transaction closed and was owed to the acquiring bank, a federal district court judge has held, rejecting the policy-based arguments on which the insurer relied to contend that its payment obligations ceased at the time of the deal closing. District of New Jersey Judge John Michael Vazquez’s unpublished September 18, 2017 opinion containing his ruling can be found here.
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Book Review: An Updated Global Guide to Directors’ Liability and Indemnification
In an increasingly global economy, questions arising from cross-border activities are an increasingly common part of day-to-day business activities. Among other things, these circumstances mean that companies frequently must contend with the legal requirements in multiple jurisdictions and deal with the associated legal exposures as well. The potential liability issues in turn raise sometimes difficult questions about indemnification and insurance. For those of us in the insurance industry, these cross-border liability, indemnification, and insurance issues can be challenging.
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A Particular Vice: Job Titles, Indemnification, and Insurance
Individuals serving as corporate officers take on significant potential liability exposures in the course of their performance of their duties. As a result, most companies indemnify their officers for liabilities incurred while acting as corporate officers. A recurring issue is the question of who is entitled to indemnification. In particular, a particular issue that courts have grappled with recently is the question of whether an individual with the title of “Vice President” is entitled to indemnification.
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Corporate Indemnification and the Yates Memo
Although it is not something that is often considered, D&O insurance is in many ways a financial tool allowing companies to manage their indemnification obligations to their directors and officers. The D&O policy’s reimbursement coverage recompenses the company when it honors its indemnification obligations to its corporate officials, and the policy’s individual coverage (usual referred to as Side A coverage) protects the individuals when the company is unable to honor its indemnification obligations, whether due to insolvency or legal prohibition.
D&O insurance is of course a critical part of corporate risk management, but the fact is that indemnification is an even more basic and comprehensive source of protection for corporate executives. Even for companies that purchase and maintain significant levels of D&O insurance, corporate indemnification provides important protection for company officials. D&O insurance is subject to limits of liability, whereas indemnification is theoretically unlimited (although, of course, practically limited by the indemnifying company’s financial resources). Indemnification is often very broad, often extending “to the maximum extent permitted by law,” whereas D&O insurance polices contain numerous exclusions and conditions. In addition, D&O insurance must be renewed each year, with possible changes in terms and conditions. Indemnification rights are much less likely to be changed, particularly, as noted below, for corporate officials who negotiate their own indemnification contracts.
Indemnification, then, is a very important consideration for all corporate directors and officers. While this has long been true, indemnification arguably has taken on an increased importance in light of the recent action by the U.S. Department of Justice. As I discussed in a post at the time (here), in September the U.S. Department of Justice released a directive — referred to as “the Yates Memo” –restating and reinforcing the agency’s commitment to targeting corporate executives in cases of corporate wrongdoing. The cornerstone of the agency’s new policies is the specification that in order for a company to qualify for any cooperation credit in connection with a DoJ investigation, the company must provide the agency with all relevant facts about the individuals involved in the misconduct.
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