Funding the Defense of Corporate Directors and Officers

Directors and officers policies generally require an insurer to pay the defense costs incurred by a covered corporate officer when a claim is made against her or him. The insurer in that circumstance does not actually provide a defense, but instead, under the terms of the policies, normally must reimburse either the officer for his defense costs or the company itself, if the company is paying the defense bill. I have written and spoken on this point elsewhere, http://www.mccormackfirm.com/pubs/WhatEveryBusinessLawyer.pdf, and have mentioned that a corporate officer or director's best proactive plan is to both have such coverage and ensure that the company bylaws require indemnification; this provides directors and officers with two sources to pay the high legal bills that are often incurred in the types of cases brought against them. Although not directly on point, in the New York Times today is an interesting article about the impact of having to fund their own defense on corporate officers and employees who are charged with criminal wrongdoing, http://www.nytimes.com/2006/04/17/business/17legal.html?_r=1&oref=slogin.