Where personal exposure comes from
Directors and officers can be sued by shareholders, by the company itself, by creditors after an insolvency, and by regulators. Typical claims allege a breach of fiduciary duty, misleading statements to investors, or mismanagement leading up to a failure. Courts in Delaware and New York generally give directors room to make informed business decisions in good faith without second-guessing the outcome, but that protection weakens where a director had a conflict of interest or did not act in good faith. Private companies and nonprofits face these claims as well, not only public companies. Personal exposure is real even when the company is the main target, because individuals are frequently named alongside it.
Indemnification, advancement, and insurance
Several layers of protection need to be examined together. The company's charter, bylaws, and any separate indemnification agreements may require it to cover defense costs and losses, and some provide for advancement, meaning the company pays legal fees as they are incurred. State law sets limits on what can be indemnified. Then there is the D&O insurance policy, which typically includes coverage that protects individuals directly when the company cannot or will not pay, as well as coverage that reimburses the company. Most of these policies are written on a claims-made basis, which makes prompt notice to the insurer important, and they carry exclusions, including for certain intentional misconduct once it is established. Collect the policy, the bylaws, and any indemnification agreement as soon as a claim appears.
Decisions in the first conversation
Early on, we confirm whether the matter counts as a claim under the policy definitions and whether notice has been given correctly. We look at whether you need counsel separate from the company, which is common when interests may diverge, for example when the company is cooperating with an investigation or attributing problems to individuals. We also review whether defense costs will be advanced and whether the insurer has reserved the right to deny coverage later. Communications about the underlying events should go through counsel, and internal emails and messages should be preserved rather than cleaned up. These steps are easier to get right at the outset than to repair later.
