Understanding Director and Officer Liability Insurance

The video discusses the concept of personal liability for corporate officers and directors, particularly when they breach their duty of care. It explains how director and officer liability insurance can protect these individuals from personal financial responsibility in legal actions. The video also highlights the paradox of shareholders indirectly funding this insurance, which may protect those they could potentially sue. Additionally, it covers the limitations of such insurance, noting that state laws may vary in what they allow corporations to cover.

What happens when an officer or director breaches their duty of care and the business judgment rule does not apply?

• They may face a derivative action or direct action for damages.

• They are required to resign from their position.

• They receive a bonus for their service.

• They are automatically protected from liability.

What is the primary purpose of director and officer liability insurance?

• To cover all types of corporate expenses.

• To protect officers and directors from personal financial liability.

• To increase the corporation's profits.

• To ensure shareholders receive dividends.

Who ultimately pays for the director and officer liability insurance?

• A third-party insurance company.

• The government through subsidies.

• The officers and directors themselves.

• The corporation using shareholder money.

Which acts are often not covered by director and officer liability insurance according to state laws?

• Acts of kindness.

• Acts of negligence.

• Routine business decisions.

• Intentional acts and breaches of duty of loyalty.

Why might shareholders find the concept of director and officer liability insurance problematic?

• It increases the corporation's tax liability.

• It complicates the corporate governance structure.

• It uses shareholder money to protect individuals they might sue.

• It reduces the value of their shares.