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3 Reasons Why You Should be Using Contractual Indemnification Agreements in Corporate Contracts

The indemnification provisions included in your corporate bylaws may not provide the protection that you need – especially if the provisions do not address scenarios that include disputes. Moreover, changes to bylaws that are made after individuals have left the organization would not be accounted for. Here’s why you should have personal contractual indemnification agreements in place.

They can provide more comprehensive protection than corporate bylaws
Bylaw agreements only provide permissive indemnification, giving corporations the option of indemnifying Directors and Officers. In contrast, written agreements make this indemnification mandatory. The rights within these agreement are enforceable obligations that cannot be amended or terminated without the individual executive’s agreement.

These agreements make the litigation process faster while protecting executives
In the event of a dispute, actions can be taken more quickly and with fewer opportunities for objection when defined terms and individual rights are clearly outlined. A written agreement can memorialize an individual’s right to select their own counsel and can specify the procedural steps to be followed if and when disputes arise. Disputes can often polarize executive teams – it’s important to sort out as many of these issues as possible while relationships are strong and accommodating.

Reassurance of funding
Contractual agreements can provide assurance that indemnifications will be paid. Specifically, if individuals are a target of claims after they have left the company, these agreements can ensure that they are still able to assert their rights of indemnification. They can also protect against wrongful withholding of indemnification, in that the fees incurred to enforce rights to indemnification will be covered. To that end, if a company may be unable to fund indemnification, the contract should stipulate that the company is required to carry a robust Directors’ & Officers’ insurance program.

Protect yourself and your organization
Protection for professional executives operating in both the public and private sector has never been more relevant. The trending increase in lawsuits and the difficult market for Directors’ and Officers’ insurance are great examples of this. In addition to protecting you and your organization, contractual considerations can also help your business retain top talent and remain competitive in today’s job marketplace.

EQUA is here to help. Our Professional and Executives Risks leader, Raj Aujla, is an expert in the field, having dedicated more than 20 years to the specialty, as both a broker and as a technical underwriter. Obtain the insight and protection that you and your organization need and show your team that you’re dedicated to keeping them safe. Email raj.aujla@equaspecialty.com to get started today. Let’s get to work.

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Raj Aujla, Professional & Executive Risk Leader