Presumptive indemnification

Presumptive indemnification is a D&O (directors and officers) policy clause that presumes the company indemnifies its directors and officers to the full extent the law allows. When the company refuses without being insolvent, the clause applies the Side B retention. Section 145 of the Delaware General Corporation Law permits a corporation to indemnify its directors and officers if they acted in good faith. They must also have acted in a manner they reasonably believed to be in or not opposed to its best interests. The statute requires the corporation to indemnify their expenses when they succeed on the merits or otherwise. Most bylaws and indemnification agreements turn the option into a commitment. The policy follows through with the presumptive indemnification clause: it presumes the company indemnifies its directors and officers to the fullest extent permitted by law. If the company fails to do so when it could have, the claim is adjusted as a Side B loss. The company's retention applies, even if the insurer pays under Side A, and the executive bears it. The clause shuts a door underwriters know well. Without it, a company might refuse to indemnify because a new board was appointed after a change of control, or because it is in conflict with the former chief executive officer. The loss would then slide onto Side A, with no retention, eroding the limit from the first dollar. The exception is financial insolvency: a company that cannot pay has refused nothing, and Side A then responds with no retention. Nor does the presumption reach what the law prohibits. A settlement of a derivative suit, which section 145 does not allow to be indemnified, is paid under Side A with no retention. Outside the United States, the clause is read against director indemnification laws that are often narrower, and it bites less there.