Indemnity and Insurance: How Directors and Officers Can Increase Their Protection | JD Supra

Whether they are new leaders or long-time members, leaders and officers need to consider two aspects of security – a solid insurance program and an indemnity agreement.

Directors and officers may face personal exposure whenever their company is involved in a dispute or investigation. For example, over the past 10+ years, stock litigation has accompanied 80% to 90% of public M&A transactions, in which shareholders are found to have violated stock claims or disclosure requirements. The volatility of the market and the increase in the management of the management system. Wise directors and officers – and any funds that place them on boards or in a leadership position – should take advantage of all the legal protections available in charters, D&O insurance. and individual repayment contracts according to their needs.

Instead, looking to the company for compensation in accordance with the terms of the charter and payment agreements is often the first line of defense. As a starting point, individual reimbursement agreements offer several advantages over those in corporate documents, as discussed below.

Easy installation

Indemnification agreements can be easily enforced by directors and officers because they are bilateral agreements that show consideration in terms of a person’s agreement to accept or continue working with the company – and they cannot be changed without the consent of the directors and officers.

Greater, more comprehensive protection

The indemnity agreement also provides more comprehensive and comprehensive protection to directors and officers than statutes and corporate documents. A well-written redemption agreement should include, for example:

  • Meaning of key words – Pay attention to words that describe the scope of the claim, such as “claims,” ​​”actions,” “costs” and “losses.”
  • Foreign directors are business investors – If possible, include language that extends the rights granted by the investment director (foreign director) to the capital fund that chooses the director.
  • Improving the value of security – Advancement is not mandatory, so a good contract should state that the company will “give” an advance. Promotional language should also include personal expenses as a senior executive and former director.
  • Pay-for-money – The agreement may also provide for, or prohibit, damages that may be incurred in the filing of interest payments or advances under the agreement or the company’s governing documents. Although it is customary for directors to be subpoenaed in lawsuits brought by third parties, they are not entitled to reimbursement for attorney’s fees and costs if they have to sue the corporation to ensure that they are entitled to an indemnity by agreement, bylaw or bylaw. . An interest agreement may expressly provide for the right to be received in “fee-for-fee” disputes.
  • A way to determine what is right and when – The agreement must establish the period for determining whether interest is owed and establish the procedures by which the beneficiary can appeal or challenge the decision, as well as including procedures and deadlines. This can be very important in furthering the claim and providing information to the person seeking guidance.
  • Essentials – In many cases, a director or an employee may have the right to a refund other than that provided by the company, in addition to the business fund or other sponsors. For this reason, it is important that both parties explain the priority of each source of interest if several parties are responsible for the director or officer to receive a fee.
  • Insurance – An indemnity agreement usually requires the company to provide D&O liability insurance that protects the best insured for the company’s directors and officers and shareholders.

D&O insurance is filling the gaps

The next form of protection – D&O insurance – has terms that cover the company’s liability and then fill in the gaps where compensation is not available to directors and officers (for example, foreclosures or derivative suits). For those who are becoming a director or officer, the scope of the D&O policy protection should be reviewed, in conjunction with the indemnification agreement. In the event of a decision against the director and the employee, the availability of support and compensation must be evaluated under the policy and the agreement of interest to follow all compensation procedures.

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