Given the current regulatory enforcement environment, an increasingly important responsibility of the general counsel is to advise the corporation, and its officers and directors, on the application and extent of insurance/advancement and indemnification protections. Several new cases demonstrate how important this responsibility can be.
For example, an August 4 decision of a federal district court in Colorado concluded that a company's then-existing D&O policy did not provide coverage for the costs incurred by the company in responding to an SEC investigation. Based upon the nature of the SEC inquiry, the court determined that it did not reflect the allegation of a "Wrongful Act" by the company as required in order to constitute a "Claim" under the policy. Rather, the court interpreted that it was an investigation to determine whether the company had indeed violated the law.
In an unrelated Delaware decision, litigation expense advancement was denied to a corporate vice president. The court ruled, based on applicable state law, that an employee becomes a corporate officer (and entitled to advancement benefits) only as provided by the corporation's bylaws. In this instance, the bylaws provided that officers must be elected by the board (and vice presidents were not so elected).
These and similar decisions may prompt the health system general counsel to review with organizational leadership the extent of current insurance and indemnification rights, and identify areas for possible enhancement. Such efforts may be particularly useful given the "gatekeeper anxiety" arising from the Yates Memorandum.
"D&O"/Advancement/Indemnity Issues
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