United States: Coverage For General Counsel And Other In-House Counsel Under Directors And Officers Liability Insurance Policies And Corporate Indemnification Provisions

Corporate general counsel and in-house counsel increasingly face the specter of being named as defendants in shareholder and other litigation, as a result of professional advice given and actions taken in the course of their employment. Although little or no specific case law exists on the subject, there is the possibility that the defense and/or indemnification costs arising from such litigation may not be covered under the directors and officers liability insurance coverage that the corporation has effected to protect its directors and officers.¹ Certainly, for in-house counsel who are not officers of the corporation, there is unlikely to be sufficient coverage under the typical D&O policy (because they are not officers, they are usually not "insureds", unless specifically named as such under the policy). While the general counsel will typically have coverage under the corporation's D&O policy, as he or she is also an officer of the company, the extent of that coverage could be questioned by the insurance company in some situations. For example, there is the potential that a D&O insurance carrier could assert that certain actions of a general counsel relate purely to the provision of legal advice to the corporation and others, versus acting in his or her capacity as a director and/or officer of the corporation. Unfortunately, this situation may occur despite the fact that the principal duty and responsibility of a corporation's general counsel is, in fact, to provide her or his company and its employees with legal advice.

Although they are not standardized, D&O insurance policies generally afford coverage for "wrongful acts" committed by directors and officers in their capacities as such. In this regard, there are four non-exclusive avenues to ensure the broadest possible coverage for a general counsel under a D&O policy.

The first way to broaden coverage is to specifically include the general counsel title in the definition of "insured persons" in the D&O policy (i.e., revise the policy definition of "insured persons" to expressly include "directors, officers, in-house general counsel," etc.). By doing this, there should be no argument that the general counsel is covered whether acting in his/her capacity as general counsel, or in his/her capacity as a director/officer (since either position, to the extent their duties arguably differ, qualifies as an "insured person" under the policy).

A second way to deal with this issue would be to amend the company's by-laws to specifically include a provision that lists the general counsel as an officer of the company (other in-house attorneys could be listed as assistant officers). (Also, we would recommend that each annual officers election by the corporation's board of directors include the election of corporation's general counsel as an officer.) By doing so, and by also specifically describing the general counsel's duties in the by-laws as the provision of legal advice to the company and its employees, etc., the general counsel should automatically fall within the definition of an "insured person" found in most existing D&O insurance policies (because he/she will be an officer of the company).² An added benefit of including the general counsel position as an "official" officer of the company is that the general counsel will then also automatically qualify for the indemnification afforded to all other officers and directors under state law corporate indemnification statutes similar to Wisconsin Statute Section 180.0850, et al.

The third way to broaden coverage under a D&O insurance policy is to ensure that the definition of "wrongful act" in the policy is not limited to acts or omissions done "solely" in a person's capacity as a director or officer. Instead, the definition should cover all "wrongful acts" of a director or officer done in his/her capacity as a director or officer, whether or not they are allegedly intermingled with other acts undertaken in some other capacity. This substantially negates any argument the insurer might later make that acts done partially in a general counsel's role as a director/officer and partially in a purely legal capacity are excluded from coverage, because they were not done "solely" in his/her capacity as a director/officer.³ The insurer is then left to attempt to parse out liability arising from acts in the role as a director/officer (which are covered) and those acts taken purely in a legal capacity (which arguably might not be covered). At least in most instances involving shareholder litigation, making this assessment and allocating costs to each will likely be very difficult.

Finally, a separate layer of comfort can usually be purchased for general counsel and/or non-officer in-house counsel in the form of "employed lawyers" liability insurance coverage. While coverage under such policies varies widely (and should be carefully reviewed to ensure the broadest possible coverage), they will often cover malpractice claims brought against employed lawyers based on actions taken in the course of their employment and, possibly, even based on legal advice rendered in the course of "moonlighting." This coverage has become more popular in recent years and is available from a number of reputable insurers that are active in the D&O and other professional liability insurance markets. If tailored properly, it can potentially fill many of the coverage "gaps" that a general counsel and/or in-house counsel might otherwise face if they simply rely on the company's D&O policy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.