Under the business judgment rule, which scenario would not be protected?

• A. Fraud or self-dealing.
• B. A hard market downturn that was unforeseen.
• C. An honest mistake with due care.
• D. A miscalculation of risk that was reasonable.

Answer: (A)

The business judgment rule protects directors when they act in good faith, with due care, and in an informed, disinterested manner within their authority. Fraud or self-dealing is not protected because it breaches the duty of loyalty and involves personal gain or deception at the company’s expense. The other scenarios reflect ordinary business decisions or prudent judgments: a downturn is a normal business risk handled with due care, an honest mistake with due care shows a lack of perfect foresight rather than a breach of duty, and a reasonable miscalculation of risk falls within protected decision-making as long as the process was informed and honest.