However, the extent to which a corporation may decide to protect its directors and officers hinges on its bylaws, corporate resolution or other agreement. These bylaws can be lenient or strict and may, for example, protect directors and officers for any allegations of wrongful conduct short of gross negligence. It is not important to know that there are such terms as derivative and nonderivative suit actions. When a class action against the corporate directors and officers is brought by stockholders on behalf of the corporation, the corporation is precluded by law from protecting the directors and officers who have allegedly caused harm to the corporation. One must keep in mind that corporate reimbursement coverage is not automatic.
Reimbursement also hinges on the policy's exclusions and conditions.
This may be another reason that some corporations forgo the purchase of this second coverage. The most common legal actions involving directors and officers are those within the first category above. The reason is that the corporation is precluded by law from protecting those who allegedly have caused the corporation financial harm. The second coverage, corporate reimbursement, applies to all other actions, subject to the bylaws, corporate resolutions, or other agreement and if otherwise covered by the policy. It also is important to understand that until recently, there was no coverage for the corporation itself that was sued.