NRA Self-Insuring Directors

Only Guns and Money has. thoughts on the subject.

“Going further, peril is the direct cause of a loss while a hazard is something that either causes or increases the likelihood of a loss. If you have a homeowner’s policy you will see these terms on it. Looking at the recent condo collapse in Dade County, the collapse was the peril while the deteriorating concrete was the hazard. In terms of the NRA, you could say that Wayne LaPierre’s grifting behavior is the peril and that the Board of Directors acquiescence in letting Wayne do anything he wants is the hazard.

A couple of the major considerations in underwriting D&O insurance are recent legal actions alleging violation of federal or state law and involvement in bankruptcy proceedings. The NY Attorney General’s lawsuit to dissolve the NRA and hold Wayne and others personally responsible fits that bill as does the abortive attempt to use bankruptcy to evade New York’s enforcement authority. When you add that to the Board’s seeming unwillingness to do its fiduciary duty, it is no wonder that the underwriters at Lloyd’s said nope.”

I spoke with someone who has experience in the area and he said: to do it properly, you need to turn the $5 million “fund” into an irrevocable line of credit, then contract with an insurer, probably a non-US insurer, and do a number of things that I can’t remember such as have an “evergreen” (future payments guaranteed) arrangement. He added, from what you say I doubt NRA leadership had the brains to do that. They’ve probably just taken five million of their assets and pasted a label on it, “insurance fund.” In that event, it will vanish when their other assets do. If the court issues a judgment dissolving NRA, the five million will vanish, and if directors get sued over the dissolution, they’ll be without protection.

He added, five million won’t go very far, anyway, with 76 directors and however many officers having to retain attorneys. And you can be sure the worst offenders are “insiders,” who will be the first to know what is coming and so the first to put their claims in, while the rest of the board has to stand in line for whatever is left.

He added that if NRA itself pays for the directors’ defense and liability, it’s called indemnification, and most state laws limit that; no sense allowing corrupt directors and officers to use the members’ money to insure themselves against the consequences of their corruption. I looked up the New York Not-for-Profit Code. Any suit brought against the officers or directors would be in the name of the corporation. Section 722 allows a nonprofit to indemnify its officers and members. 722(c) covers indemnification for a lawsuit brought in the name or right of the corporation.

It says the corporation may indemnify a director “if such director acted, in good faith, for a purpose which he reasonably believed to be in . . . the best interests of the corporation. . . .” So the director must be able to prove he acted in good faith, that he believed his acts were in the best interests of NRA, and that that belief was “reasonable.” I wonder how many could convince a judge or jury of all three — especially the “reasonable” part.

But we’re not home yet. A director cannot be indemnified unless the court “determines upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such portion of the settlement amount and expenses as the court deems proper.” So a nonprofit director sued in the name of the corporation pays his or her legal expenses to the end of the case, then may or may not get reimbursed for the part of them that the court thinks proper. Provided they pass all the other requirements up above, reasonable belief, good faith, etc.

There don’t seem to good odds of a director explaining to the court how re-electing corrupt officers (after their corruption has been public knowledge for years), not even asking them if the charges were true, not investigating, purging directors who did ask, etc., was action in “good faith,” reasonably believed to be in NRA’s best interests, that fairly entitles them to reimbursement by the corporation to which they owed a fiduciary duty. “Why didn’t you even question LaPierre?” “why did you shout down Journey?” can’t be answered with “if I did, the Nominating Committee wouldn’t re-nominate me” or “Marion Hammer would get nasty to me.” But without those answers, that $5 million fund cannot be used to indemnify anyone.

A last thought. The only directors or officers being sued today are Wayne LaPierre and John Frazer. They had to retain their own attorneys. Is the $5 million actually being used, illegally under the New York law, to pay their legal costs?

11 thoughts on “NRA Self-Insuring Directors

  1. The NRA’s win against Ollie North on payment of legal fees based upon indemnification will come back to bite them. It was probably Brewer’s only legal win for the NRA and even that was not in its best interests.

    Liked by 1 person

  2. “Don’t worry, we have a $5m D&O fund! $66,666.666 for each director if we don’t have to spend it on officers!”

    “Is it in an escrow account?”

    “No.”

    “Is it an irrevocable line of credit?”

    “No.”

    “Is it a bond?”

    “No, but don’t worry, we promise not to spend it on anything else! Trust us!”

    “Ok! Let me just get my rubber stamp!”

    Like

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