Indemnification Agreement: Should Your In-House Counsel Have One?
When it comes to indemnification agreements for in-house lawyers, there are a number of considerations to take into account. There's plenty of liability and litigation to keep in-house counsel relevant. But what are in-house attorneys to do when the tables turn on them?
Should you enter into an indemnification agreement with your employer?
With a hat tip to Justin Comeaux's piece for McGriff, Seibels & Williams, Inc., here are a few things to consider:
- Determine the scope of your company's indemnification to in-house lawyers. Review the company's indemnification grant in its Articles of Incorporation and Bylaws. It might not hurt to see how other lawyers at the company are avoiding liability.
- Look at state laws. Review the applicable state statute governing corporate indemnification. Remember, the parent company and subsidiary companies may be incorporated under the laws of different states.
- Do your research. Don't be boxed in by your company's standard indemnification policy. Consider state bar opinions/rules of professional conduct as to viability of hold harmless agreements.
- Assess the malpractice liability facing your legal department. Try to think about circumstances under which current management or directors would have the company sue you for professional negligence under a malpractice claim.
- Assess the SEC/Third party liability facing your legal department. Your legal work may very plausibly entail a range of SEC filings and/or require appearances before the SEC. Heightened regulatory oversight and exposure could make you liable. You also may issue legal opinions or certifications to third parties. These realms of work can make you vulnerable to personal liability.
- Find out whether indemnification is mandatory or permissive. Consider whether any such indemnification is mandatory or permissive. Is the company required to fund a defense or settlement short of a final adjudication that the attorney did not satisfy the requisite standard of conduct for permissible indemnification? Or, is the decision whether to defend and indemnify in-house lawyers left entirely to the discretion of the board of directors in place at the time of the claim?
- Consider and prepare for situations when your company would be legally or financially unable to defend you. For example, your company may not be able to indemnify you after all if it becomes insolvent, undergoes a change in control or has a derivative claim in your case.
These are just the tip of the iceberg. There are, of course, a variety of ways to protect in-house attorneys from personal liability.
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