Directors' and Officers' Insurance There are matters that cannot be indemnified under the law or the company does not have the enough resources to indemnify officers and director. In this case, the appropriate remedy would be insurance coverage. Corporations are allowed to purchase insurance to cover matters resulting from acts taken by officers and directors. This insurance coverage is different and separate from the general liability insurance the corporation purchase for the corporation itself in general. Insurance of this type hurts corporate pocket considering that it is not cheap. The reasons for the increase of the cost are two (2) things: first, the cost for directors' and officers' insurance has gone up dramatically due to the inherent risk associated to it (it involves big fishes in the corporation who can decide big things). Second, the exclusions for coverage have also increased; insurance companies understandably want to trim down their assumed risk, the lesser specific coverage, the better.strategies. irectors, lawyers and accountants before initiating Don't use anti-takeover strategies except when you are sure that it will not backfire leaving the company at risk and defenseless. LIABILITY ISSUES AND INDEMNIFICATION OF OFFICERS Liability can accrue for officers and directors when they cause financial and nonfinancial harm to the corporation, or when they act solely on their own behalf which " detrimental to the corporation, this can be in a form of commission of a crime and other wrongful acts. Certain acts may place an officer or director to personal liability (uninsured), and other acts, although they would otherwise openly expose them to liability, may be either compensated by or insured against by the corporation. Personal Liability of Officers and Directors The following are issues that may subject officers and directors to personal liability: Issues involving misappropriation Issues involving nondisclosure of conflict of interest Issues on loyalty Issues on non-separation of personal and business concerns Issues on prudence Indemnification of Officers and Directors Indemnification of officers and directors refers to the act of the reimbursing officers and directors for expenses incurred, liabilities accrued, and amounts paid in defending claims brought to them for actions taken on behalf of the corporation. Shareholders should recognize that in the absence of this method of trying to limit the personal liability of officers and directors for claims brought against them, it will be difficult for corporations to find anyone willing to take such a risky job of serving as officers or directors. As a result of this, some corporate bylaws are now containing provisions regarding indemnification and insurance for officers and directors. Provisions may vary as to where and when indemnification will apply. Provision for indemnification and insurance of officers, directors, and person holding sensitive positions can also be included in the bylaws of the corporation to have a strong basis as to where, when, and how the related process will be done. Internal and External Institutions and Influences of Corporate Governance | 3-19