Indemnification & Insurance

Question 1

Indemnification

Answer 1

Statutes in all states govern the extent to which a corp. may properly indemnify its directors or officers for expenses incurred in defending suits. Not only are directors/officers entitled to indemnification when sued for breach of duty or for wrong committed on behalf of corp. but also for actions that are more tangible in their official roles.

Question 2

Indemnification - D Wins

Answer 2

Every state permits corp. to reimburse for litigation expenses, including atty. fees, in defending the action

Question 3

Indemnification- D Loses/Settles 3RD PARTY SUITS

Answer 3

Permit indemnification for both litigation expenses and for whatever civil/criminal liabilities incurred; D had to have acted in good faith AND in criminal action, there is no reason to believe the action involved was unlawful.

Question 4

Indemnification- D Settles DERIVATIVE SUIT

Answer 4

Permit indemnification for officer/director for litigation expenses provided: settlement made w/court approval AND D determined to have acted in good faith, w/reasonable care, and w/belief that was acting in best interests

Question 5

Indemnification- D Loses DERIVATIVE SUIT

Answer 5

When director/officer adjudged to have acted dishonestly, in bad faith, or to have obtained an improper personal gain, some statutes prohibit indemnification. Some states allow if such person is fairly and reasonably entitled to such indemnity

Question 6

Insurance

Answer 6

Most statutes authorize corp. to purchase and maintain insurance to: a) protect corp. against liability for indemnification b) protect directors/officers against any liability arising out of their service to corp. c) against expense of defending suits asserting such liability.