12 Cfr 701.33 (1-1-19 Ed)

§ 701.33

12 CFR Ch. VII (1–1–19 Edition)

§ 701.33 Reimbursement,
insurance,
and indemnification of officials and
employees.
(a) Official. An official is a person who
is or was a member of the board of directors, credit committee or supervisory committee, or other volunteer
committee established by the board of
directors.
(b) Compensation. (1) Only one board
officer, if any, may be compensated as
an officer of the board. The bylaws
must specify the officer to be compensated, if any, as well as the specific
duties of each of the board officers. No
other official may receive compensation for performing the duties or responsibilities of the board or committee position to which the person
has been elected or appointed.
(2) For purposes of this section, the
term compensation specifically excludes:
(i) Payment (by reimbursement to an
official or direct credit union payment
to a third party) for reasonable and
proper costs incurred by an official in
carrying out the responsibilities of the
position to which that person has been
elected or appointed, if the payment is
determined by the board of directors to
be necessary or appropriate in order to
carry out the official business of the
credit union, and is in accordance with
written policies and procedures, including documentation requirements, established by the board of directors.
Such payments may include the payment of travel costs for officials and
one guest per official;
(ii) Provision of reasonable health,
accident and related types of personal
insurance protection, supplied for offi-

cials at the expense of the credit union:
Provided, that such insurance protection must exclude life insurance; must
be limited to areas of risk, including
accidental death and dismemberment,
to which the official is exposed by reason of carrying out the duties or responsibilities of the official’s credit
union position; must cease immediately upon the insured person’s leaving office, without providing residual
benefits other than from pending
claims, if any; except that a credit
union must comply with federal and
state laws providing departing officials
the right to maintain health insurance
coverage at their own expense and
(iii) Indemnification and related insurance consistent with paragraph (c)
of this section.
(c) Indemnification. (1) A Federal credit union may indemnify its officials
and current and former employees for
expenses reasonably incurred in connection with judicial or administrative
proceedings to which they are or may
become parties by reason of the performance of their official duties.
(2) Indemnification shall be consistent either with the standards applicable to credit unions generally in the
state in which the principal or home
office of the credit union is located, or
with the relevant provisions of the
Model Business Corporation Act. A
Federal credit union that elects to provide indemnification shall specify
whether it will follow the relevant
state law or the Model Business Corporation Act. Indemnification and the
method of indemnification may be provided for by charter or bylaw amendment, contract or board resolution,
consistent with the procedural requirements of the applicable state law or
the Model Business Corporation Act, as
specified. A charter or bylaw amendment must be approved by the National
Credit Union Administration.
(3) A Federal credit union may purchase and maintain insurance on behalf
of its officials and employees against
any liability asserted against them and
expenses incurred by them in their official capacities and arising out of the
performance of their official duties to
the extent such insurance is permitted
by the applicable state law or the
Model Business Corporation Act.

476

VerDate Sep<11>2014

13:02 Mar 27, 2019

Jkt 247041

PO 00000

Frm 00486

Fmt 8010

Sfmt 8010

Q:\12\12V7.TXT

PC31

National Credit Union Administration

§ 701.34

(4) Notwithstanding paragraphs (c)(1)
through (3) of this section, a federal
credit union may not indemnify a dual
employee for duties performed for any
employer other than the federal credit
union. For purposes of this subsection,
a dual employee is a federal credit
union employee who also performs
work functions for another entity as
part of a sharing arrangement between
the federal credit union and the other
entity.
(5) Notwithstanding paragraphs (c)(1)
through (3) of this section, a Federal
credit union may not indemnify an official or employee for personal liability
related to any decision made by that
individual on a matter significantly affecting the fundamental rights and interests of the Federal credit union’s
members where the decision giving rise
to the claim for indemnification is determined by a court to have constituted gross negligence, recklessness,
or willful misconduct. Matters affecting the fundamental rights and interests of Federal credit union members
include charter and share insurance
conversions and terminations.
(6) A Federal credit union may, before final disposition of a proceeding
referred to in paragraph (c)(5) of this
section, advance funds to pay for or reimburse the expenses, including legal
fees, reasonably incurred in connection
with the proceeding by an official or
employee who is a party to the proceeding because that individual is or
was an official or employee of the credit union if:
(i) The disinterested members of the
credit union’s board of directors (or in
the event there are fewer than two disinterested directors, the supervisory
committee), in good faith, determine in
writing after due investigation and
consideration that the official or employee acted in good faith and in a
manner he or she reasonably believed
to be in the best interests of the credit
union’s members;
(ii) The disinterested members of the
credit union’s board of directors (or the
supervisory committee, as the case
may be), in good faith, determine in
writing after due investigation and
consideration that the payment or reimbursement of the expenses will not

materially adversely affect the credit
union’s safety and soundness; and
(iii) The official or employee provides:
(A) A written affirmation of the individual’s reasonable good faith belief
that the relevant standard of conduct
described in § 701.4(b) of this chapter
has been met by the individual; and
(B) A written undertaking to repay
the credit union for any funds advanced or reimbursed, to the extent
not covered by payments from insurance, if the official or employee is not
entitled to indemnification under paragraph (c)(5) of this section.
(7) To the extent a Federal credit
union has elected to follow State law
or the Model Business Corporation Act
in accordance with paragraph (c)(2) of
this section, the credit union must substitute the phrase ‘‘in the best interests of the members’’ for any language
indicating that fiduciary duties are
owed to persons or entities other than
the members of the credit union, including, but not limited to, language
such as ‘‘in the best interests of the
credit union’’ or ‘‘in the best interests
of the corporation.’’
[53 FR 29642, Aug. 8, 1988, as amended at 57
FR 54503, Nov. 19, 1992; 66 FR 65629, Dec. 20,
2001; 72 FR 30246, May 31, 2007; 75 FR 81386,
Dec. 28, 2010]

477

VerDate Sep<11>2014

13:02 Mar 27, 2019

Jkt 247041

PO 00000

Frm 00487

Fmt 8010

Sfmt 8010

Q:\12\12V7.TXT

PC31