Legal Question in Business Law in Colorado

D&O insurance for LLC member managers

Our LLC Operating Agreement provides indemnification for the chairman and management committee members however they feel that if something should happen that one or more of them should face a law suit therefore needing a legal defense and perhaps ultimately a settlement being made that Directors and Officers insurance is necessary to protect them and the assets of the LLC. My question is this a wise decision or do the Colorado limited liability laws afford the necessary protections?


Asked on 3/14/08, 3:37 pm

2 Answers from Attorneys
L. Eric Lundgren Lundgren Law Offices, P.C.

Re: D&O insurance for LLC member managers

Without knowing the nature of the business I would have to say that an officers and directors policy is a must. There are some small businesses that, on the basis of a cost benefit analysis, elect not to carry the insurance, but I would not advise it, particularly in lieu of additional information about the business.

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Answered on 3/14/08, 5:19 pm
Robert Murillo Pivotal Legal Ltd.

Re: D&O insurance for LLC member managers

As noted before, it really depends on the nature of the business. In some circumstances, it is critical and others less so. It really is a business decision and dependent on various factors, including the exact terms of the operating agreement.

While the limited liability veil is useful, in many circumstances the suing parties may try to pierce the veil and occasionally the entity veil will not apply (limited circumstances). You should be certain to follow formalities and other procedures to protect the entity veil. You should discuss this matter with local business counsel.

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Answered on 3/14/08, 5:37 pm


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