Directors and Officers Liability: Prevention, Insurance and Indemnification

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John H. Mathias, Jr., David M. Kroeger, Matthew M. Neumeier, Jerry J. Burgdoerfer

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With liability often looming just over the horizon, corporate directors and officers rely on liability insurance and indemnification for peace of mind. Finally, there is a book that spells out in detail how these protections really work—and how they differ.

Directors and Officers Liability: Prevention, Insurance and Indemnification examines such topics as: the risks officers and directors face; derivative and class actions; when insurance is available; and when a corporation is required—or allowed—to provide indemnification. The authors have included comprehensive coverage of indemnification agreements and liability insurance policies, with point-by-point analysis of provisions, procedures, exceptions and gray areas.

Book #00659; looseleaf, one volume, 678 pages; published in 2000, updated as needed; no additional charge for updates during your subscription. Looseleaf print subscribers receive supplements. The online edition is updated automatically. ISBN: 978-1-58852-095-1.

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  • Availability: Available
  • Brand: Law Journal Press
  • Product Type: Books
  • Edition: 0
  • Page Count: 678
  • ISBN: 978-1-58852-095-1
  • Pub#/SKU#: 659
  • Volume(s): 1

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  • John H. Mathias, Jr.

John H. Mathias, Jr. is senior partner and head of the Insurance Coverage Litigation Group of the Chicago office of Jenner & Block, a national firm with offices in Chicago, Washington D. C., Los Angeles, New York, and Dallas. He has served as the Co-Chair of the Insurance Coverage Litigation Committee of the American Bar Associations Litigation Section. He is a veteran trial lawyer who has lectured and written frequently on developments in insurance law. In recent years, Mr. Mathias has counseled companies, directors, officers and risk managers on a wide array of complex insurance coverage and procurement issues in the context of securities fraud class actions. He is a graduate of Harvard Law School (1972) and Dartmouth College (1969).

Also by John H. Mathias, Jr.:
Insurance Coverage Disputes

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  • David M. Kroeger
David M. Kroeger is a partner and senior member of the Insurance Coverage Litigation Group of the Chicago office of Jenner & Block.  He has represented major U.S. policyholders in insurance coverage matters, including directors and officers liability insurance, since 1990.  He has also written and lectured on a variety of insurance coverage issues.  Mr. Kroeger graduated with highest honors from the University of Illinois College of Law (1990) and clerked for Judge Harlington Wood, Jr. of the United States Court of Appeals for the Seventh Circuit.

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  • Matthew M. Neumeier
Matthew Neumeier (deceased) was a partner in Howrey LLP's Chicago office. He was one of the nation's outstanding class action defense lawyers in the areas of products liability, mass tort and financial services.

Also by Matthew M. Neumeier:
Electronic Discovery

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  • Jerry J. Burgdoerfer
Jerry J. Burgdoerfer is a senior partner in Jenner & Block's Chicago office, a member of its Corporate Department and Co-Chair of its Securities Practice. He experience includes representing public and privately-held companies in a wide range of corporate, corporate governance and securities law matters, such as mergers, acquisitions, joint ventures, securities offerings, registered spin-offs, dispositions and restructurings, some in excess of $25 billion. He also has extensive experience in advising companies, boards of directors, board members and executive officers on director and officer liability issues, fiduciary duties, and indemnification and defense cost obligations.

Duties of Directors and Officers

§ 1.01 General Nature of Duties of Officers and Directors
§ 1.02 Duty of Loyalty
[1] Definition and Purpose of the Duty of Loyalty
[2] Sources of the Duty of Loyalty
[3] Forms of Breach of the Duty of Loyalty
[4] The Common Law Doctrine of Shareholder Ratification
§ 1.03 Duty of Care
[1] Standard of Care Defined
[2] Negligence
[3] Matters Affecting or Limiting the Duty of Care
§ 1.04 Other Duties
[1] Duty of Disclosure
[2] Duty to Creditors
[3] Duties During Chapter 11 Bankruptcy
§ 1.05 The Business Judgment Rule
[1] Definition and Purpose
[2] The Business Judgment Rule in Detail
[3] Standards Used When the Business Judgment Rule Does Not Apply
§ 1.06 Tender Offers, Mergers, and Other Change of Control Attempts
[1] Federal Securities Law Liability in Connection with Tender Offers
[2] Directors’ Duty to Make Informed Decisions in Change of Control Transactions
[3] Defensive Measures in Response to Hostile Takeover Attempts
[4] Director Duties in Auctions
[5]  Settlement Considerations
§ 1.07 Other Sources of Direct Liability of Corporate Directors and Officers
[1] Ultra Vires Acts
[2] Illegal Acts
[3] Directors’ Duties in Executive Compensation Decisions
[4] Waste
[5] Board Duties and Cybersecurity
§ 1.08 Committees of the Board of Directors
[1] Committees for Particular Events
[2] Standing Committees

Derivative Litigation

§ 2.01 Overview
§ 2.02 Distinction Between Derivative and Direct Claims
[1] Definitions
[2] Derivative Claims
[3] Direct Claims
[4] Simultaneous Derivative and Direct Claims
[5] Special Considerations for Directors and Officers in Settlement Negotiations
§ 2.03 Procedural Aspects of Derivative Litigation
[1] Pleading Requirements
[2] Pleading with Particularity
[3] The Right to a Jury Trial
[4] Requirement to Be a Shareholder
[5] Loss of Standing in Merger Situations and Bankruptcy
[6] Statutes of Limitations
[7] Discovery Issues
§ 2.04 Bringing a Derivative Suit
[1] Demand Requirement
[2] Demand Futility
[3] Adverse Domination Doctrine
[4] Special Litigation Committees

Class Action Litigation

§ 3.01 Direct Actions and Shareholder Class Actions
§ 3.02 Federal Securities Laws
§ 3.03 Common Features of the 1933 and 1934 Acts
[1] Secondary Liability: Control Person Liability
[2] Secondary Liability: Respondeat Superior
[3] Statute of Limitations
[4] In Pari Delicto Defense
§ 3.04 Corporate Director and Officer Liability Under the 1933 Act
§ 3.05 Liability for Lack of Required Registration—Section 12(1)
[1] Registration Requirements
[2] Potential Plaintiffs and Defendants
[3] Remedies
§ 3.06 Liability for Material Misstatement or Omission in a Prospectus or Oral Offer for Sale—Section 12(2)
[1] Elements
[2] Potential Plaintiffs and Defendants
[3] Defenses and Burdens of Proof
[4] Remedies
§ 3.07 Material Misstatements or Omissions in Registration Statements—Section 11
[1] Elements
[2] Potential Plaintiffs and Defendants
[3] Defenses
[4] The Due Diligence Defense
[5] Remedies
§ 3.08 Fraud Under the 1933 Act—Section 17(a)
[1] Elements
[2] Defenses
[3] Remedies
§ 3.09 Corporate Director and Officer Liability Under the 1934 Act
§ 3.10 General Antifraud Provision—Section 10(b)
[1] Liability of Secondary Actors
[2] Elements
[3] Standing
[4] Scope of Section 10(b) and Rule 10b-5
[5] Remedies
§ 3.11 Material Misstatements and Omissions in Proxy Statements—Section 14(a)
[1] Elements
[2] Remedies
§ 3.12 Tender Offers and Liability Under the Williams Act
[1] Elements
[2] Remedies
§ 3.13 Background of State Blue Sky Laws
[1] Purposes of Blue Sky Laws
[2] Federal and State Jurisdiction
§ 3.14 Control Person Liability Under State Blue Sky Laws
[1] Definition of "Control Person"
[2] Defenses
[3] Participation Requirements
§ 3.15 Civil Liability Under State Blue Sky Laws
[1] The Uniform Securities Act
[2] The Uniform Securities Act of 1985
[2A] The Uniform Securities Act of 2002
[3] New York
[4] California
§ 3.16 Applicability of State Blue Sky Laws
§ 3.17 Remedies for Breach of State Blue Sky Laws

Other Liabilities of Directors and Officers

§ 4.01 Overview
§ 4.02 Common Law Liability
[1] Piercing the Corporate Veil
[2] Tort Liability
§ 4.03 Statutory Liability
[1] Environmental
[2] Employee Retirement Income Security Act of 1974
[3] Fair Labor Standards Act
[4] Family and Medical Leave Act
[5] Tax
[6] Sarbanes-Oxley Act of 2002
[7] Dodd-Frank Wall Street Reform and Consumer Protection Act
§ 4.04 Criminal Liability
[1] Criminal Fraud
[2] Criminal Counterparts to Statutory Civil Liability
[3] Foreign Corrupt Practices Act of 1977
[4] Economic Espionage Act of 1996
[5] Antitrust Laws
[6] Obstruction of Justice
§ 4.05 Bankruptcy Liability
[1] Preferential Payments
[2] Fraudulent Transfers
[3] Fiduciary Duty to Creditors
[4] Criminal Liability

Indemnification of Directors and Officers

§ 5.01 Indemnification Basics
[1] The Concept of Indemnification
[2] Historical Background
[3] Distinguishing Indemnification from Insurance
§ 5.02 Statutory Indemnification
[1] Governing Law
[2] Scope of Coverage
[3] Advancement of Costs
[4] Types of Indemnification
[5] Requirements for Obtaining Relief
[6] Nonexclusivity
[7] Authorization for Insurance Coverage
[8] Fee Shifting
§ 5.03 Corporate Indemnification
[1] Statutory Authorization for Charter and Bylaw Provisions
[2] Shareholder Approval
[3] Charter and Bylaw Indemnification Provisions
[4] Contractual Indemnification
§ 5.04 Public Policy Limits on Indemnification
[1] General Public Policy
[2] Officials of Depository Institutions
[3] Federal Securities Laws

Overview of Directors and Officers
Liability Insurance
§ 6.01 An Introduction to D&O Liability Insurance
§ 6.02 Applying for the D&O Policy
[1] The Application and the “Warranty Letter”
[2] Innocent Insureds
[3] Rescission
§ 6.03 Components of a D&O Liability Policy
[1] Declarations
[2] Insuring Agreements
[3] Exclusions
[4] Definitions
[5] Conditions
§ 6.04 Allocation
[1] Covered and Uncovered Claims
[2] Insured and Uninsured Capacity
[3] Covered and Uncovered Parties
[4] Policy Provisions Governing Allocation
[5] Insured vs. Insured Exclusion
§ 6.05 Advising Corporate Boards on Directors and Officers Insurance
[1] The Board Meeting
[2] Bankruptcy Concerns
[3] Rescission
§ 6.06 D&O Insurance Audits
[1] Why the D&O Insurance Audit?
[2] Staffing Considerations
[3] Major Concerns in Performing the D&O Insurance Audit

Rules of Policy Interpretation and Construction

§ 7.01 Contract Interpretation Generally
§ 7.02 Insurance Policy Interpretation
[1] General Rules of Interpretation
[2] Contra Proferentem Doctrine
[3] Contra Proferentem and the Sophisticated Policyholder
[4] Coverage Grants vs. Exclusions
§ 7.03 The Parol Evidence Rule
§ 7.04 Determining Ambiguity
§ 7.05 Ambiguity and the Parol Evidence Rule
§ 7.06 Reasonable Expectations

Exclusions in D&O Policies

§ 8.01 Introduction
§ 8.02 Insured vs. Insured/Entity vs. Insured Exclusion
[1] General Provisions
[2] Common Exceptions
[3] Application to Governmental and Regulatory Action
[4] Application to Bankruptcy and Insolvency Situations
[5] Application to Whistleblowers
[6] Application to Assignees
§ 8.03 Prior Acts Exclusion
§ 8.04 Dishonest, Fraudulent, and Criminal Acts Exclusion
§ 8.05 Employment-Related Activities Exclusion
§ 8.06 Outside Directorship Exclusion
§ 8.07 Bodily Injury, Property Damage, Advertising Injury, and Personal Injury Exclusion
§ 8.08 Prior Notice and Prior Knowledge Exclusions
[1] Prior Notice Exclusion
[2] Prior Knowledge Exclusion
§ 8.09 Prior and Pending Exclusion
§ 8.10 Regulatory Exclusion
§ 8.11 ERISA Exclusion
§ 8.12 RICO Exclusion
§ 8.13 Insurance Not Maintained Exclusion
§ 8.14 Personal Profit or Advantage Exclusion
§ 8.15 Return of Remuneration Exclusion
§ 8.16 Securities Exclusions, Including the “Bump Up” Exclusion
§ 8.17 Short-Swing Profit Exclusion
§ 8.18 Subsidiary Officers or Directors Exclusion
§ 8.19 Takeover Exclusion
§ 8.20 Bribes, Political Payments, and Gratuities Exclusion
§ 8.21 Pollution and Related Exclusions
[1] Claims “Arising Out of” Pollution or Other Contamination
[2] Climate Change Claims
§ 8.22 Breach of Contract Exclusion
§ 8.23 Professional Services Exclusion
§ 8.24 Money Laundering Exclusion
§ 8.25 Intellectual Property Exclusion
§ 8.26 Ownership Percentage Exclusion
§ 8.27 Severability Issues
§ 8.28 Exclusions and the Duty to Defend

Claims Submission and Handling Under D&O Policies

§ 9.01 Notice of Claim
§ 9.02 Cooperation
§ 9.03 Insurer’s Duty to Investigate
§ 9.04 Insurer’s Duty to Pay or Advance Defense Costs
§ 9.05 Control of the Defense
[1] Choice of Counsel
[2] Separate Counsel
[3] Litigation Guidelines
§ 9.06 Insurer’s Reservation of Rights
[1] Waiver or Estoppel
[2] Mend the Hold Doctrine
§ 9.07 Bad Faith
[1] The Implied Covenant of Good Faith and Fair Dealing
[2] Bad Faith Breach of the Duty to Pay Defense Costs
[3] Bad Faith Breach of the Duty to Not Unreasonably Withhold Consent to Settlement of a Third-Party Action
[4] Bad Faith Conduct that May Prejudice a Policyholder’s Defense of an Underlying Action
[5] Bad Faith Litigation Practices
[6] Discoverability of the Claims File
§ 9.08 Damages Available in a Bad Faith Action
[1] Excess Judgments
[2] Punitive Damages
[3] Consequential Damages
[4] Damages for Mental Suffering
[5] Attorneys’ Fees
§ 9.09 Statutory Claims
[1] The Model Unfair Claims Settlement Practices Act
[2] Statutory Bad Faith Claims and Penalties
§ 9.10 Assignment of Coverage Claims

Litigation and Settlement Considerations

§ 10.01 Choice of Forum
[1] Venue
[2] Doctrine of Forum Non Conveniens
§ 10.02 Justiciability Issues
§ 10.03 Arbitration Requirements
§ 10.04 Discovery
[1] Areas of Discovery
[2] Privilege Issues
§ 10.05 Trial of the Directors and Officers Coverage Case
[1] Introduction
[2] Judge vs. Jury Issues
[3] Evidentiary Issues: “The Case Within a Case”
§ 10.06 Issues Arising Out of Settlements and Settlement Agreements
[1] Exhaustion of Underlying Coverage
[2] Priority of Coverage Among Directors and Officers and Corporation
[3] Consent to Settlement
[4] Settling and Non-Settling Insureds
§ 10.07 D&O Policy Proceeds in Bankruptcy Proceedings
[1] Bankruptcy’s Impact on Directors and Officers
[2] Case Law on the Ownership of D&O Policy Proceeds in Bankruptcy
[3] The Impact of Entity Coverage
[4] Priority Provisions and Other Solutions
§ 10.08 D&O Insurance and Securities Litigation: Some Practical Concerns
[1] Appointing a Conservator
[2] Analyzing the Coverage
[3] Avoiding Statements and Conduct Harmful to Coverage
[4] Softening the Insurers’ Negotiation Position
[5] Crafting the Settlement