Corporate directors and officers are requesting that companies reassess the coverage of once standard advancement and indemnification provisions in D&O insurance policies, following release of the “Yates Memo” issued by the U.S. Department of Justice in September, 2015.
Senior level corporate board members and executives are concerned about the adequacy of D&O insurance coverage. The advancement of legal fees is a key point being addressed, because oftentimes, the individual who is the subject of investigation will have left the company prior to the enforcement action.
“One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing,” Deputy Attorney General Sally Quillian Yates states in the memo.
With its focus on prosecuting individuals for alleged corporate misdeeds, the Yates memo lays out the six steps listed below, to be applied in any investigation of corporate misconduct, whether criminal or civil. They are:
- To be eligible for any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in corporate misconduct.
- Both criminal and civil corporate investigations should focus on the individuals from the inception of the investigation.
- Criminal and civil attorneys handling corporate investigations should be in routine communication with one another.
- Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals.
- Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires and declinations as to individuals in such cases must be memorialized.
- Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.
This shift in focus to individual liability creates a potentially difficult position for companies seeking leniency in settlement negotiations. Federal prosecutors are not to reduce penalties or offer any credit for cooperation unless a corporation discloses all relevant information about individual wrongdoers.
Additionally, in the event of a resolution with a company, prosecutors are advised against granting immunity for, or dismissing charges against, any individual who may be subject to investigation.
Step 5 mandates also that the corporate cases should not be resolved absent a clear plan to resolve related individual cases before such claims would be barred.
Provisions addressing indemnification in D&O insurance policies are further scrutinized when considering that the Yates memo directs civil attorneys to bring and maintain viable actions against individual wrongdoers with minimal regard being placed on the individual’s ability to pay.
Just as the memo aims to ensure accountability, so too will corporate directors and officers when it comes to their D&O insurance coverage.
Click here to access a copy of the Department of Justice Yates Memo.