Under Delaware law, indemnification is mandatory if a director or officer successfully defends a claim against himself. But, who pays for the defense until the case is finally decided? Such expenses could easily bankrupt all but the very wealthy. Under Delaware law, advancement of such expenses is discretionary and is determined by the precise language of a company's charter, bylaws or separate agreement. The following case illustrates why you should read those provisions carefully.

On Dec. 31, 2012, in Miller v. Palladium Industries, Inc., the Delaware Court of Chancery granted judgment for Palladium Industries, Inc., finding that under its bylaws, Palladium did not owe advancement to David F. Miller III, a former director and the longtime CEO of Palladium, because Palladium's board of directors formally denied the request as permitted under Palladium's advancement bylaw.

Palladium's bylaws included two relevant passages. The first provision stated that defense expenses “shall be paid … in advance of … final disposition.” But the second provision stated that advancement will be paid “unless otherwise determined by the board of directors in the specific case ….” In accordance with this latter provision, the board rejected Miller's request for advancement.