Insurance remains the best, most effective hedge against a director or officer’s worst-case scenario—the one-two punch of lawsuit that comes on the heels of his or her corporation’s filing for bankruptcy.
If you are sued as a director or officer, you would normally expect your company to advance legal fees to you and indemnify you. Unfortunately, that expectation will be dashed if you are sued while your company is in bankruptcy or if your company goes into bankruptcy while you are being sued. In bankruptcy, you are at best an unsecured creditor standing in line with all the other unsecured creditors hoping the company’s limited assets don’t run out. Your D&O policy may be the only thing left protecting you.
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