Director Indemnity Agreement: Understanding the Basics
A director indemnity agreement is a legal document that protects directors from personal liability for claims or lawsuits made against them in connection with the performance of their duties. This type of agreement is generally included in the articles of incorporation or bylaws of a company and is intended to give directors confidence in carrying out their responsibilities without fear of personal financial loss.
The Purpose of Director Indemnity Agreements
Directors play a crucial role in making decisions that affect a company`s success or failure. However, these decisions can sometimes result in lawsuits or claims against the directors, which can be financially and emotionally draining. A director indemnity agreement can help provide some protection to the directors by covering the cost of legal representation and any damages awarded if a lawsuit is successful.
The Scope of Director Indemnity Agreements
The scope of a director indemnity agreement can vary considerably from company to company. Some agreements may cover only specific types of claims related to the director`s duties, while others may provide broader protection. It is important for directors to carefully review the agreement before signing it and to ensure that they understand the extent of their protection under the agreement.
Director Indemnity Agreements and Insurance
In addition to director indemnity agreements, companies may also purchase directors and officers (D&O) liability insurance. This type of insurance provides coverage for claims made against directors and officers of a company, including claims related to breach of fiduciary duty, misrepresentation, and other wrongful acts. D&O insurance can provide an additional layer of protection for directors, but it is important to note that it does not replace the need for a director indemnity agreement.
Conclusion
As a director, it is important to be aware of the protection available to you under a director indemnity agreement. These agreements can provide valuable protection against personal financial loss in the event of a lawsuit or claim, but it is essential to carefully review the agreement and understand its scope. Additionally, companies may choose to purchase D&O insurance to provide further protection for their directors and officers. By working with legal and insurance professionals, directors can ensure that they are adequately protected while carrying out their important responsibilities.
