Delaware Amends General Corporation Law Expressly Permitting Captive Insurers To Provide D&O Coverage

On February 7, 2022, Delaware Governor John Carney signed Senate Bill 203 amending Section 145(g) of the Delaware General Corporation Law (“DGCL”).  The amendments permit Delaware corporations to obtain directors’ and officers’ (“D&O”) liability insurance from a captive insurance company.  In brief, a captive insurance company is an insurer that is wholly owned, controlled, and funded by the corporation for the primary purpose of insuring the risks of the corporation.

Section 145 of the DGCL outlines when a Delaware corporation is permitted to and prohibited from providing indemnification.  For risks that a Delaware corporation is prohibited from indemnifying, most corporations turn to Section 145(g) of the DGCL which grants a Delaware corporation the power to purchase D&O coverage; however, prior to the amendments, it was unclear whether Section 145(g) included coverage through a captive insurance company.

The amendments to the DGCL expressly authorize a Delaware corporation to purchase and maintain D&O insurance through a captive insurer.  Coverage through a captive insurer is permitted for liabilities incurred even in certain situations where the corporation, itself, is prohibited from providing indemnification. However, pursuant to Section 145(g)(1), a captive insurance policy may not cover or make a payment in connection with losses attributable to (i) personal profit or financial advantage to which such person was not entitled or (ii) deliberate criminal or deliberate fraudulent acts, or any knowing violation of law.

The full text of Senate Bill 203 can be found here.