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.”