The DOJ on D&O: What You Need to Know

In September the Department of Justice released its new directive on individual accountability for corporate wrongdoing in a revived effort to fight corporate fraud.  The “Yates Memo” by Deputy U.S. Attorney General Sally Quillian Yates, outlines the DOJ’s policy on targeting and pursuing corporate executives in cases of corporate wrongdoing.  With the DOJ’s new guidelines companies should be taking a fresh look at their D&O insurance.

The Memo identifies the following six key steps to strengthen the Department’s pursuit of corporate wrongdoing:

  • To qualify for any cooperation credit, corporations must provide to the Department all relevant facts relating to the individuals responsible for the misconduct.
  • Both criminal and civil investigations should focus on individuals from the outset.
  • Criminal and civil attorneys handling corporate investigations should be in routine communication with one another.
  • Absent extraordinary circumstances, corporate resolution will not release the culpable individuals from civil or criminal liability.
  • Cases should not be resolved with a corporation without a clear plan to resolve related individual cases.
  • Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.

The new guidelines raise several insurance implications for corporations.  Side “A” coverage on a D&O policy provides protection when an individual is not indemnified by a corporation.  It is important to ensure that the scope of the Side A coverage encompasses liability that may be incurred as a result of a DOJ investigation.  This may involve reviewing the policy’s definition of a “Claim” or criteria to “trigger” coverage and amending as needed.

Additionally, now that corporations can no longer negotiate a settlement that would resolve the case for both the company and the corporation, the likelihood of more defendants, multiple settlements and lengthy cases may increase.  Therefore, companies will need to consider whether their current policy provides for adequate limits. Often, Side B or Side C coverage can exhaust the policy’s limits, resulting in insufficient coverage for the individual.

Companies and individuals should also review any applicable indemnification clauses.  Individuals with indemnification clauses in their employment contracts will want to determine whether it will allow for separate counsel from the outset of an investigation.   Companies will also want to ensure that they have adequate coverage to satisfy any indemnification obligations as directors and officers become increasing targets.

It remains to be seen just how the mandates of the Yates Memo will play out.  However, for the time being, companies and their corporate officers and directors would be wise to review their D&O policies with the Yates’ mandates in mind to ensure they have adequate coverage to combat this potentially changing landscape of D&O liability.


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