Portfolio 54-2nd: Indemnification and Insurance for Directors and Officers

I. Introduction

II. Indemnification
A. Background
1. New York adopts first statute
2. The Model Business Corporation Act
3. State legislation
B. Current Statutory Provisions
1. Coverage
a. Persons covered
b. Proceedings covered
c. Expenses covered
(1). Type of action
(2). Controlling expenses
2. Mandatory indemnification
a. `To the extent ... successful'
b. `On the merits or otherwise'
3. Permissive indemnification
a. Standard of conduct
(1). Good faith/reasonable belief
(2). `Or not opposed to'
(3). Criminal actions
b. Determination of whether standard has been met
(1). Disinterested directors
(2). Independent legal counsel
(3). Shareholders
4. Court-ordered indemnification
5. Advancing expenses
6. Notice to shareholders
7. Additional indemnification rights
a. Nonexclusivity provisions
(1). Action by resolution, bylaw, or charter provision
(2). Indemnification contract
b. Requirement of consistency
C. Liability Limitation Provisions
1. Charter-option provisions
2. Self-executing provisions
3. Cap on damages
4. Securities litigation reform

III. Insurance
A. General
B. The D&O Policy
1. Application
2. Nature of coverage
3. Coverage for claims against insureds
4. Multi-part policy
5. Claims-made policy
C. Typical Claim
1. Notice of claim
2. Acknowledgment and consent
3. Reservation of rights
4. Defense costs
5. Settlement/termination of claim
a. Consent to settlement
b. Allocation
c. Termination
D. Distinctive Characteristics of the D&O Policy
1. Split deductible
2. Coinsurance
3. Standard exclusions
4. Additional exclusions
5. Uninsured amounts
6. Limit of liability
E. Bankrupt/Insolvent Insureds
1. Bankruptcy
2. Financial institutions
F. Alternatives to D&O Insurance

IV. Conclusion