Facing allegations of white collar wrongdoing can feel overwhelming, and it is natural to wonder if indemnity clauses or certain insurance policies might help. In Michigan, business officers often rely on indemnity agreements and liability insurance as financial safety nets. While these tools can provide some support, it is important to understand their limits, especially when white collar criminal charges are on the table.
Understanding indemnity provisions
Many companies include indemnity clauses in their bylaws, employment contracts or other agreements. In general, these provisions promise that the company will cover legal fees and related expenses if an officer is sued in connection with official duties. This protection can be valuable when defending against civil lawsuits, investigations or other claims stemming from ordinary business operations.
However, indemnity clauses usually have strict boundaries. They typically do not apply if the officer engaged in intentional misconduct or criminal activity. In other words, if you are charged with fraud, embezzlement or another white collar offense, the indemnity clause may not shield you from the financial fallout of a criminal defense.
What about liability insurance?
Similarly, business-related insurance, such as directors and officers policies or errors and omissions insurance, can help pay for legal representation, settlements or judgments tied to negligent acts or oversights. These policies often prove invaluable when facing civil claims or regulatory probes.
But, like indemnity agreements, liability insurance generally excludes coverage for intentional wrongdoing or illegal acts. If the investigation evolves into a criminal case and leads to a conviction, the insurer may refuse coverage or seek reimbursement for defense costs it initially paid.
Does that mean either could pay for my defense?
It is possible that, at the outset of an investigation, indemnification or insurance might pay for part or all your legal defense. But, if evidence surfaces that you committed a criminal act, the company or insurer can withdraw support or demand reimbursement. That leaves you managing the expenses, and the consequences, on your own.
While indemnity provisions and liability insurance can offer valuable financial protections in many business disputes, they are not bulletproof solutions when it comes to white collar criminal charges. Before relying on these safeguards, understand their limitations.