More on NRA Directors Liability Insurance

We’re in possession of a remarkable string of emails circulating amongst the board.

August 9, 2021. John Frazer emails directors, saying he is pleased to announce they were able to obtain a directors and officers’ insurance coverage, after Lloyd’s of London refused to renew the existing one.

August 9. Director Rocky Marshall replies, asking for a copy of the policy, since he wants to review it.

August 11, Marshall makes a second request, and suggests that copies be sent to the entire board, a very reasonable request. Later in the day, he repeats the request, noting that a director’s right to inspect a corporation’s records is absolute.

August 12, he calls Frazer’s office with the same request, also asking for copies of all claims made against the previous policy for 2018-2021.

Our thought: that’s clever. Wonder if Frazer and LaPierre (who are being sued personally by the NY Attorney General) made a claim against the Lloyd’s policy, and that’s what led to it being canceled? Is Lloyd’s now paying their attorneys? Something any board of directors should know. Did the corporation’s officers make a claim, and did it lead to our own insurance being canceled?

August 13, Frazer finally responds that he doesn’t have a copy: “the forms have not yet been issued by the underwriters. Typically, this takes some time after the policy is bound. . . .” 

Thought: so the insurer takes your premium, says he is bound, and that he will later tell you what he’s insured you against? Who can believe that? If true, it is proof of incompetence. Frazer as General Counsel should know, before the contract is signed, what was in it. If he’s doing his job, he negotiated it. On the other hand, the board might reflect that this critical contract is being negotiated by a man with about 18 months’ actual experience in the practice of law. This is the highest of high stakes, and your player is an amateur with no experience in insurance law. He’s betting the farm, and it’s YOUR farm.

Frazer adds, “due to the unfortunate need to protect this confidential information from being leaked to the media and parties adverse to the NRA, the leadership decided that sensitive information such as you request will not be forwarded by email.”

 Frazer offers to bring the policy to the (cancelled) Houston meeting so Marshall can see it (but not have a copy), “Alternatively, if you’re willing to travel to Fairfax, we can arrange an in- person examination at headquarters.”

Our thought: so this insurance policy is top secret, “eyes only”? Why? Is it like LaPierre’s employment contract, we remember how that was used in the bankruptcy. Parties adverse to NRA might use it? How? The media already has covered the story about Lloyd’s of London refusing to insure the board. News that the board has coverage would be favorable (so the media would ignore it). Unless, of course, the media got a lawyer to look it over, and found out that the policy was worthless. That would be news — and news that the NRA leadership doesn’t want the board to see.

August 17, director Marshall writes a rebuttal, repeating that a director’s right of inspection is absolute, and no employee-officer has a right to proclaim the corporation’s records “confidential” against a director. Frazer in a phone call said that bloggers would write negative articles if the policy were released. Marshall answers, “To use this as an excuse for not releasing information that I have requested is creating an artificial barrier that prevents me from performing proper oversight. This also increases the risk for the NRA because the NYAG lawsuit continues to highlight the lack of oversight from the NRA Board of Directors.”

 Marshall adds, inspection at Fairfax HQ is hardly feasible for a director a thousand miles away., at a time of Covid-19. Inspection at the Houston meeting is insufficient; he wants his attorney to look it over.

         “This email is another demand for a copy of the Declaration page of the D&O policy. I would be grateful to receive this copy via email or a hard copy mailed to my physical address. Failure to provide a copy of the D&O policy is unacceptable regardless of the contrived reasons that you have outlined in your email.’

Yesterday, August 27, Marshall sent the entire email exchange to the board, after waiting ten days for a reply that never came.

Our thoughts: And there it stands. An employee of the corporation refuses to allow a director of it to see a corporate document. A document that personally affects members of the board. The story given is unbelievable at multiple levels. On the one hand, Frazer gives assurances that directors are now protected. On the other, Frazer claims that he hasn’t even seen the policy, how can he assure anyone of anything?. What would you think of an insurance broker who told you he’d gotten you a great policy for your business, pay the premium, but he can’t let you see the policy, if someone sues you you’ll find out then what you are insured for.

As we pointed out earlier, directors and officers policies don’t have provisions fixed by law, they are whatever you can negotiate. What do they cover, what do they exclude, what are the policy limits, is there a deductible, is the insurer likely to be around if you get sued and have legal fees in the millions (to give you an idea, Brewer’s already billed NRA for $50 million) or lose a ruling for tens of millions? Is the insurance company some foreign fly by night operation? What does the policy exclude? Does it say no coverage if directors get sued by NRA members, or if they get sued by a state, like New York? No coverage if a director breached their fiduciary duty? No coverage for anything done before the policy was issued? You can bet an insurer, knowing the state of the NRA, would be wanting to exclude as much as he can, and you can bet that NRA leadership was desperate to find any insurer who would issue any policy that would calm the board, even if the policy gives them no protection.

I suppose we’ll see if the board as a whole has any gonads, or if Marshall is the only one in that class. Will they back down before their employee, shuffle away avoiding eye contract, and let him bet the farm, their farm, on it?

UPDATE A reader who is an attorney emails:

Marshall is quite right: a director of a New York corp has an absolute, ABSOLUTE, right to see corporate records. See Matter of Cohen v. Cocoline Products, 309 N.Y. 119 (Ct of Apps 1955):

“In order properly to perform his directing duties, a corporate director must, of course, keep himself informed as to the policies, business and affairs of the corporation, and as to the acts of its officers. He owes a stewardship obligation to the corporation and its stockholders, and he may be subjected to liability for improper management during his term of office. Because of these positive duties and potential liabilities, the courts of this State have accorded to corporate directors an absolute, unqualified right, having its roots in the common law, to inspect their corporate books and records (citing many cases).”

To the same effect is Brenner v. Hart Systems, Inc., 493 N.Y.S.2d 881, 114 A.D.2d 363 (Ct of Apps 1985). A director has “the absolute and unqualified right to inspect and examine the corporate books and records,” and “The contention that [he] is hostile to the Hart corporation does not affect this right of inspection.”

2 thoughts on “More on NRA Directors Liability Insurance

  1. LaPierre and Frazer act as if the subordinate (the hired help Frazer and LaPierre) rule the principals (the directors). A director has the absolute and unqualified right to inspect and to examine the corporate books and records. Whether a director is “hostile” to the corporation has no impact on the director’s right of inspection.

    More bizarre is that, almost certainly, Frazer is doing exactly what he is being told to do by someone else who is hired help — Bill Brewer. I’ve heard elsewhere that Frazer screwed up badly on the contract with Brewer when Brewer was first hired by the NRA. Frazer admitted the screw-up. And, at that point, the NRA could have paid off Brewer and gotten out of the contract. Instead, for his own reasons, LaPierre instructed directors to ratify the contract with Brewer, and things continued. That suggests LaPierre has a lot that he must hide.

    And Frazer’s conduct suggests that he also has done plenty that he wants hidden. More than one attorney has said of Frazer, “That man should be disbarred.” When he was hired, he was just an incompetent who was thrilled by an enormous salary — like a kid finding a pony on Christmas morn. Since being hired, he has done things that should forever bar him from the practice of law. He is a member of the Virginia Bar. Someone needs to file a complaint against him. The Bar will not take action without a bar complaint. A bar complaint can come from ANYONE, and there is no statute of limitations on bar complaints. He deserves punishment for what he has done to the NRA. He likely will never serve a day in prison. Surely no one would ever hire him as a lawyer when his time with the NRA is done, but he deserves the specific and humiliating punishment of being disbarred.

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  2. Who’s the ins co? Another shell co or sweetheart deal with Wayne’s beard-wife or pet vendor?

    A friend sent me this analysis yesterday:

    “Just spoke with our broker. Didn’t tell him it was re NRA. His comments:

    D&O is always a “claims made” policy, so Lloyds is off the hook for covering past dereliction etc unless those claims or issues were made/disclosed during the policy period, i.e. D&Os are naked, no Lloyds protection, on claims & issues not disclosed before policy expired.

    NewInsCo’s off the hook too unless NRA bought a “tail” to cover claims not yet made on actions/inactions during the Lloyds coverage period. But even then NewInsCo is off the hook & D&Os are naked for known issues not disclosed before new policy execution.

    Non-profit D&O ins unlikely to cover even a small fraction of hundreds of millions of dollars in potential claims.

    So the D&Os are totally or largely naked for past, present & future dereliction and complicity.

    Not rare for a b/k judge to “freeze” D&O ins to cover the organization but not the D&Os.

    Crimes are not covered.

    Ouch.

    On 8/28/2021, D wrote:

    And the Ins Co IS . . .? Does it have a NAME so its insured can communicate with it concerning his insurance coverage and limits?

    ===

    I haven’t verified all this, but it makes sense. Forgot to ask the extent to which directors may be entitled to have the ins co pay for their legal defense against criminal prosecution. As one might expect, in the end, some behavior is illegal to insure and the ins co can refuse to pay monetary settlements.”

    http://www.natlawreview.com/article/does-directors-and-officers-insurance-policy-cover-settlement-criminal-charges

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