D&O Indemnification for Delaware Corporations: What Companies Should Know About Indemnification, Advancement, and Separation Agreements

For directors and officers, indemnification and advancement rights can be among the most important protections available when disputes arise from their service to a company. For companies, those same rights can create obligations that extend well beyond an executive’s or director’s departure.

An August 12, 2026, final report by Magistrate in Chancery Loren Mitchell of the Delaware Court of Chancery involving an NVCA-style indemnification agreement highlights the importance of understanding how indemnification, advancement of expenses, and separation agreements work together, and how to make sure that a company’s documents reflect the protections and obligations the parties actually intend.

Understanding Indemnification and Advancement Rights

Present and former directors and certain officers are entitled to a base level of indemnification under Delaware law. However, this mandatory indemnification is limited to expenses actually and reasonably incurred where a director or officer is successful on the merits or otherwise in defense of a claim. Given directors’ and officers’ exposure to potential claims because of their service to a company, many companies provide (a) expanded rights to indemnification and (b) rights to the advancement of expenses in the company’s certificate of incorporation, bylaws, a separate indemnification agreement, or other contractual arrangements.

Although related, indemnification and advancement are distinct rights.

Indemnification generally refers to a company’s obligation to reimburse or cover certain losses and expenses incurred by a director or officer in connection with qualifying proceedings. Advancement, by contrast, is the company’s payment of a director’s or officer’s legal fees and expenses as they are incurred, generally subject to an undertaking by the director or officer to repay those amounts if it is ultimately determined that the individual is not entitled to indemnification. Delaware law does not require advancement, but a company’s governing documents or contractual commitments (such as an indemnification agreement) may make advancement obligatory.

The distinction matters because the two rights can have different practical and financial consequences for a company. A company may intend for one right to survive a director’s or officer’s departure while limiting or terminating the other.

What Happens to These Rights When a Director or Officer Leaves?

A director’s or officer’s departure does not necessarily terminate previously granted indemnification or advancement rights.

Whether those rights survive depends on the company’s governing documents, any contractual commitments, and applicable law. In drafting indemnification agreements, companies should consider:

• How the indemnification and advancement rights are defined;
• Whether the indemnification agreement expressly survives termination of service;
• How broadly the agreement defines key terms such as “Proceeding,” “Corporate Status,” or “Expenses”;
• Whether the agreement contains a defined tail period or outside date;
• Whether the agreement requires specific procedures or presumptions when determining entitlement to indemnification; and
• How any subsequent separation agreement or release addresses those rights.

These questions become particularly important when a company is separating from a senior executive or director while litigation is pending or when the possibility of future litigation remains.

An NVCA-Style Agreement Provides a Recent Example

The August 12, 2026, final report by Magistrate in Chancery Loren Mitchell of the Delaware Court of Chancery provides useful insight into how these provisions may be interpreted.

In Kuruvilla v. Bolt Financial, Inc., C.A. No. 2026-0435-LM (Del. Ch. Aug. 12, 2026), the Magistrate in Chancery considered whether a former CEO’s separation agreement preserved his right to advancement under an indemnification agreement that tracked provisions of the National Venture Capital Association’s (“NVCA”) form indemnification agreement.

During the CEO’s tenure, and prior to his departure, a stockholder brought a claim against the CEO and the company’s other directors. While the litigation was still pending, the company ended the CEO’s employment. The company and the CEO entered into a separation agreement containing a broad release in connection with the CEO’s departure. The release carved out “claims related to rights to indemnification or insurance” that he had pursuant to contractual arrangements with the company.

The company later sued the former CEO, alleging misconduct and breaches of his fiduciary and confidentiality obligations while he was CEO. When he sought advancement of his legal expenses in that lawsuit, the company argued that his separation agreement had released the claim.

The Magistrate in Chancery disagreed.

Advancement Was “Related to” Indemnification

Although the indemnification agreement addressed indemnification and advancement in separate provisions, the Magistrate in Chancery viewed the two rights as distinct but interrelated. Because the release preserved claims “related to” indemnification, the Magistrate in Chancery concluded that the language was broad enough to preserve the former CEO’s advancement rights as well.

The decision highlights an important drafting distinction. Language preserving claims “related to” indemnification may be broader than language preserving claims specifically “for” indemnification. Even so, Delaware courts have read “indemnification,” used in its broad sense, to include advancement, so “for” language alone may not reliably exclude advancement.

For companies that intend for indemnification and advancement to receive different treatment following a separation, it is important to say so expressly rather than relying on general or relational language.

Advancement Rights May Extend Beyond the Date of Departure

The Magistrate in Chancery also considered whether the former CEO’s advancement rights had expired when his employment and board service ended or when the earlier litigation against him was resolved.

The Magistrate in Chancery concluded that the former CEO’s indemnification agreement encompassed future proceedings arising following his departure. The indemnification agreement provided that the company’s obligations continued for so long as the individual was subject to a “Proceeding.” “Proceeding” was defined to include threatened, pending, or completed actions in which the individual “was, is or will be involved” by reason of his status as a current or former director or officer of the company. Relying on that forward-looking language and prior Delaware authority reading “subject to” a proceeding to mean “exposed to being sued,” the Magistrate in Chancery found that the former CEO remained subject to a Proceeding by reason of his prior service as an officer, and that the company’s obligations under the indemnification agreement extended to proceedings commenced after his departure, including the company’s lawsuit against him.

The practical implication is that a company should not necessarily assume that an executive’s or director’s indemnification and advancement rights end when the individual leaves the company. If the parties intend for those obligations to expire on a specific date, an express outside date may be appropriate in a separation and release agreement.

Kuruvilla was issued as a final report by a Magistrate in Chancery and has not been formally released for publication nor yet adopted by the Court of Chancery, so it should not be treated as binding precedent. But it does provide useful insight into how these provisions may be interpreted.

Separation Agreements and Releases: A Practical Takeaway

The Kuruvilla decision illustrates why companies should review separation agreements alongside their existing D&O indemnification agreements rather than in isolation. This issue is particularly relevant for venture-backed companies that use NVCA-style indemnification agreements for directors and officers.

A separation agreement may contain a broad release intended to resolve all claims between the company and a departing executive. But if the release contains an exception for indemnification or related rights, the scope of the underlying agreement (e.g., the indemnification agreement) can determine what claims survive. The stakes are concrete: in Kuruvilla, the Magistrate in Chancery concluded that the company must advance the former CEO’s defense costs in its own lawsuit against him, as well as the fees he incurred to enforce that right.

Before finalizing a separation, companies should consider:

• What rights does the individual already have? Review the company’s bylaws, certificate of incorporation, indemnification agreement, and other applicable documents.
• Does the indemnification agreement distinguish indemnification from advancement? If the company intends for those rights to be treated differently after separation, the separation agreement should clearly reflect that intent.
• How long do the rights survive? Look beyond the termination date. Definitions of “Proceeding,” “Corporate Status,” and similar terms may extend the company’s obligations beyond the individual’s service.
• What does the release actually carve out? Words such as “related to” can have broader implications than the parties may anticipate. The release should be reviewed against the underlying indemnification agreement to ensure the carve-out produces the intended result.
• Is there a defined outside date? If the company intends for advancement or indemnification obligations to expire after a particular period, the separation agreement should clearly establish that endpoint and clearly waive the individual’s rights beyond it.

Sam Connor is a corporate attorney whose practice focuses on business transactions and general corporate matters, including mergers and acquisitions, equity financings, and corporate governance. For questions, reach out to your primary KO attorney or Sam at [email protected].