Directors and Officers coverage: Hogan vs. Gawker, Hogan puts the smackdown on CEO Nick Denton
Somewhere in the back of my head as I write this I can hear the intro music for Hulk Hogan as he heads toward the ring. ‘ I am a real American…fight for the rights of ev’ry man …. Da, da, da da da …….da da da da….’
If you have been following the news lately, you may have seen that Hulk Hogan recently won a huge judgment in his invasion of privacy lawsuit against Gawker Media. $115 million in compensatory damages for invasion of privacy stemming from the sex tape that Gawker posted on their site without permission. Putting aside the morality of posting a sex tape of someone online and then defending it by calling it newsworthy, that’s a noteworthy amount. If it doesn’t come down in appeal it could bankrupt the company.
I personally can’t get enough of this case, it has everything. Sex tapes, lawsuits, new media, 80’s wrestling legends… and now a smooth segue to Directors and Officers insurance coverage.
For the purposes of this blog post I am going to focus on what happened in day two of the penalty phase of this trial. A key point to remember in this is that Hogan not only sued Gawker Media, Hogan sued both the CEO of Gawker, Nick Denton, as well as the editor-in-chief, AJ Daulerio. In day two of the penalty phase, Nick Denton was hit with a $10 million dollar judgment and AJ Daulerio for $100k.
Somewhere in my head on 80’s wrestling commentary…..
Gorilla Monsoon: ‘ Ohh look out Brain, Hogan’s hulking up!!!’
Bobby ‘The Brain’ Heenan: ‘Wha… this guy’s not human, GET OUT OF THERE NICK, GET OUT OF THERE!!!’
Gorilla Monsoon: ‘Too late for that Brain! Here comes the big leg!!!’
Now for a guy who is at the head of a huge media empire, odds are Nick Denton will be covered by Gawker Media’s Directors and Officers coverage. Good thing too because even on appeal, Mr. Denton likely won’t get completely off the hook for the damages that he is personally liable for at this point. Depending on the kind of policy Gawker has, perhaps AJ Daulerio could be covered as well. Some policies will cover non-executive directors to a limited degree.
As far as the argument that ‘Hey, even if he gets nailed for $10 mil, he owns the company. The company will pay him back’. A good argument, two things go against it. One, if the company is solvent after all is said and done, who pays Gawker Media for making their CEO whole? The D&O coverage, that’s who. Without it (provided Gawker reimburses officers in such cases as standard operating procedure), Gawker Media would be out another 10 million. With the coverage, Gawker will be covered for the amount needed to make its officer whole.
But what if the $115 million dollar judgment holds up on appeal? What if the worst case comes to pass and Gawker goes under? That $10 million dollar personal judgment is still there. Nick Denton would still be personally liable with no entity to make him whole. Once again, here’s where having a comprehensive D&O policy becomes so important. If a company goes under due to a lawsuit and a firm’s directors and officers are still liable, there had best be a healthy D&O policy in place. The policy would be there to cover said directors and officers against a judgment, protecting their personal assets. Without it, well….. someone will get left holding the bag.
Now Gawker is not a publicly traded company, note that this is a perfect example of how Directors and Officers coverage isn’t just for publicly traded companies. In this day and age, if there is a lawsuit worth pursuing, it’s worth pulling everybody in, and that includes a company’s leadership. In this case, company policies that filtered down to what Gawker saw as admissible to post as news came back and bit them…hard. Ultimately a jury found Nick Denton had a personal responsibility for the actions taken at Gawker that lead to where we are now. Hogan hit ’em hard on it in day 2 on the penalty phase.
Note to directors and officers of a business, even small businesses, you don’t need to be a huge publicly traded company to have a risk. This is just a recent example in a long line of examples where directors and officers find themselves in the line of fire. If this is something your company has not taken up yet and merits discussion, please feel free to reach out. I would be happy to act as a resource for you on the matter.