D.C. Mun. Regs. tit. 26, r. 26-A1307

Current through Register Vol. 71, No. 49, December 6, 2024

Rule 26-A1307 - INDEMNIFICATION

1307.1

The Facility shall indemnify:

(a) each director of the Board (or other board empowered to act in the capacity of a board of directors) and the representatives of any insurer Member of the Board, each Member of any other committee or any subcommittee of the Facility, and the estate, executor, administrator, personal representative, heirs, legatees and devisees of any such person made a party to a proceeding by reason of service in that capacity unless it is proved that:

(1) The act or omission of such Member or person was material to the cause of action adjudicated in the proceeding; and (A) was committed in bad faith or (B) was the result of active and deliberate dishonesty;

(2) Such Member or person actually received an improper personal benefit in money, property, or services; or

(3) In the case of any criminal proceeding, such Member or person had reasonable cause to believe that the act or omission was unlawful.

(b) every Member of the Facility, both as a Member and by reason of such Member having one or more of its personal representatives or employees serving in any of the capacities or positions specified in paragraph (a) above, or as an officer or employee of the Facility, which has been made a party to a proceeding by reason of service in that capacity, unless it is proved that:

(1) The act or omission of such Member or person was material to the cause of action adjudicated in the proceeding; and (A) was committed in bad faith or (B) was the result of active and deliberate dishonesty;

(2) Such Member or person actually received an improper personal benefit in money, property, or services; or

(3) In the case of any criminal proceeding, such Member or person had reasonable cause to believe that the act or omission was unlawful.

1307.2

Indemnification under subsection 1307.1 shall be against judgments, penalties, fines, settlements, and reasonable expenses actually incurred by the Member or person in connection with the proceeding. However, if the proceeding was commenced by, on behalf of, or in the right of, the Facility, indemnification shall not be made in respect of any proceeding in which the Member or person shall have been adjudged to be liable to the Facility.

1307.3

The termination of any proceeding by judgment, order, or settlement does not create a presumption that the Member or person did not meet the requisite standard of conduct set forth in subsection 1307.1. The termination of any proceeding by conviction, or a plea of nolo contendre or its equivalent, or an entry of an order of probation prior to judgment, creates a rebuttable presumption that the Member or person did not meet that standard of conduct.

1307.4

The Facility may indemnify any officer or employee of the Facility, any consultant to, or independent contractor retained by the Facility, or the estate, executor, administrator, personal representative, heirs, legatees or devisees of such person made a party to a proceeding by reason of service in that capacity unless it is proved that:

(a) The act or omission of such person was material to the cause of action adjudicated in the proceeding; and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty;

(b) Such person actually received an improper personal benefit in money, property, or services; or

(c) In the case of any criminal proceeding, such person had reasonable cause to believe that the act or omission was unlawful.

1307.5

Indemnification under subsection 1307.4 may be against judgments, penalties, fines, settlement, and reasonable expenses actually incurred by the person in connection with the proceeding. However, if the proceeding was commenced by, on behalf of, or in the right of, the Facility, indemnification may not be made in respect of any proceeding in which the person shall have been adjudged to be liable to the Facility.

1307.6

The termination of any proceeding by judgment, order or settlement does not create a presumption that the person did not meet the requisite standard of conduct set forth in subsection 1307.4. The termination of any proceeding by conviction, or a plea of nolo contendre or its equivalent, or an entry of an order of probation prior to judgment, creates a rebuttable presumption that the person did not meet that standard of conduct.

1307.7

A Member or person shall not be indemnified under of subsection 1307.1 or 1307.4 in respect of any proceeding charging improper personal benefit to the Member or person, whether or not involving action in the Member's or person's official capacity, in which the Member or person was adjudged to be liable on the basis that personal benefit was improperly received.

1307.8

A court of appropriate jurisdiction, upon application of a Member or person and such notice as the court shall require, may order indemnification in the following circumstances:

(a) If it determines a Member or person is entitled to reimbursement under subsection 1307.1, the court shall order indemnification, in which case the Member or person shall be entitled to recover the expenses of securing such reimbursement; or

(b) If it determines that the Member or person is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the Member or person met the standards of conduct set forth in subsections 1307.1 or 1307.4, or has been adjudged liable under the circumstances described in subsection 1307.7, the court may order such indemnification as the court shall deem proper. However, indemnification with respect to any proceeding commenced by, on behalf of, or in the right of, the Facility, or in which liability shall have been adjudged in the circumstances described in subsection 1307.7, shall be limited to expenses.

1307.9

A court of appropriate jurisdiction may be the same court in which the proceeding involving the Member or person's liability took place.

1307.10

Indemnification under subsection 1307.1 shall not be made by the Facility unless authorized for a specific proceeding after a determination has been made that indemnification of the Member or person is required in the circumstances because the Member or person has met the standard of conduct set forth in subsection.

1307.11

Such determination under subsection 1307.10 shall be made:

(a) By the Board by a majority vote of a quorum consisting of directors not, at the time, parties to the proceeding, or, if such a quorum cannot be obtained, then by a majority vote of a subcommittee of the Board consisting solely of two or more directors not, at the time, parties to such proceeding and who were duly designated to act in the matter by a majority vote of the full Board in which the designated directors who are parties may participate;

(b) By special legal counsel selected by the Board or a subcommittee of the Board by vote as set forth in subparagraph (a) hereof, or if the requisite quorum of the full Board cannot be obtained therefore and the subcommittee cannot be established, by a majority vote of the full Board in which directors who are parties may participate; or

(c) By the Members of the Facility.

1307.12

Indemnification under subsection 1307.4 may not be made by the Facility unless authorized for a specific proceeding after a determination has been made that indemnification of the person is permitted in the circumstances because the person has met the standard of conduct set forth in that subsection and that under the circumstances indemnification is in the best interests of the Facility.

1307.13

Such determination under subsection 1307.12 shall be made:

(a) by the Board by a majority vote of a quorum consisting of directors not, at the time, parties to the proceeding, or, if such a quorum cannot be obtained, then by a majority vote of a subcommittee of the Board consisting solely of two or more directors not, at the time, parties to such proceeding and who were duly designated to act in the matter by a majority vote of the full Board in which the designated directors who are parties may participate; or

(b) by the Members of the Facility.

1307.14

Authorization of indemnification and determination as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is required or permitted. However, if special legal counsel makes a determination that indemnification is required, authorization of indemnification and determination as to reasonableness of expenses shall be made in the manner specified in paragraph 1307.13(b) for selection of such counsel.

1307.15

Reasonable expenses incurred by a Member or person, other than an officer or employee, who is a party to a proceeding shall be paid or reimbursed by the Facility, and in the case of an officer or employee, reasonable expenses incurred may be paid or reimbursed by the Facility in advance of the final disposition of the proceeding upon receipt by the Facility of:

(a) A written affirmation by the Member or person of the Member's or person's good faith belief that the standard of conduct necessary for indemnification by the Facility as authorized by this section has been met; and

(b) A written undertaking by or on behalf of the Member or person to repay the amount if it shall ultimately be determined that the standard of conduct has not been met.

1307.16

The undertaking required by paragraph 1307.15(b) shall be an unlimited general obligation of the Member or person but, in the discretion of the Board, need not be secured and may be accepted without reference to financial ability to make the repayment.

1307.17

Payments under subsection 1307.15 shall be made as provided by contract or as specified in subsection 1307.8 or subsection 1307.10.

1307.18

The indemnification and advancement of expenses provided or authorized by this section shall not be deemed exclusive of any other rights, including, but not limited to, indemnification, any right to which the Member or person may be entitled under this chapter, any resolution of the Members or the Board or any contract or other agreement, both as to actions in an official capacity and as to actions in another capacity while holding such position.

1307.19

This chapter does not limit the Facility's power to pay or reimburse expenses incurred by a Member or person in connection with an appearance as a witness in a proceeding at a time when the Member or person has not been made a named defendant or respondent in the proceeding.

1307.20

The Facility may purchase and maintain insurance on behalf of any entity or person who is or was a Member, a director, a representative of any director of the Board, a member of any other committee or any subcommittee of the Facility, and the estate, executor, administrator, personal representative, heirs, legatee and devisees of any such person, or an officer or employee of the Facility and the estate, executor, administrator, personal representative, heirs, legatees or devisees of such officer or employee, or which (or who), while a Member, director of the Board, representative of a director of the Board, member of any other committee or any subcommittee, officer or employee of the Facility, is or was serving at the request of the Facility as a director, officer, partner, trustee, employee, or agent of a foreign or domestic corporation, partnership, joint venture, trust, other enterprises, or employee benefit plan, against any liability asserted against and incurred by such entity or person in any such capacity or arising out of such entity's or person's position, whether or not the Facility would have the power to indemnify against liability under the provisions of this chapter.

1307.21

The Facility may provide similar protection to that referenced in subsection 1307.20, including a trust fund, letter of credit, or surety bond, not inconsistent with this chapter.

1307.22

Any insurance or similar protection provided by the Facility may be procured through a Member or other affiliate of the Facility.

1307.23

The indemnification provided by this chapter shall be secondary to any benefits which the Member or person may be entitled to receive from any applicable insurance policy providing Directors and Officers, Errors and Omissions or other applicable insurance coverage, which has been procured by the Facility or for which the Facility has paid the premium.

1307.24

The indemnification provided by this chapter shall be primary over any indemnification provided by a Member or a director of the Board at his or its own expense. The indemnification provided for in this chapter shall be deemed to be an expense of the Facility to which all of the Members of the Facility shall contribute in the proportion that such Member participates according to law in writings, expenses, and losses of the Facility.

1307.25

In this section, the following terms shall have the meanings ascribed:

"Member" means any entity that is or was an insurer member of the Facility or a director of the Board of Directors of the Facility.

"Expenses" includes, but not limited to, attorney's fees.

"Official capacity" means the following:

(i) The role of a Member of the Facility, when used with respect to a Member;

(ii) The position of director of the Board of Directors of the Facility, when used with respect to a director of the Board of Directors; and

(iii) The elective or appointive office in the Facility held by the officer, or the employment relationship undertaken by the employee on behalf of the Facility, when used with respect to an entity or person other than a Member of the Facility or a director of the Board of Directors.

"Party" includes a person who was, is, or may be made, a named defendant or respondent in a proceeding.

"Proceeding" means any threatened, pending or completed action or suit, whether civil, criminal, administrative, or investigative.

D.C. Mun. Regs. tit. 26, r. 26-A1307

Final Rulemaking published at 51 DCR 11573 (December 24, 2004)