I'm subjecting my humblest interpretation of the Protector ability. Please correct me if I may have understood it some other way from the CR. Here goes my take on the ability and how it interacts with Chain Lightning and AOEs:
A character with Protector can (if the controller chooses to)soak up all the damage from a Chain Lightning thrown at a distance. The Protector ability is a triggered ability (the 1st word in the text line is "IF") and once the trigger condition has been satisfied there's no clause in the OCR that would limit its use provided that the Protector ally is adjacent to the proposed defender and the source of the attack is at a distance.
Also, Protector CAN be used against AOEs! To use the protector ability, only 3 conditions have to be met: 1) the attack should be made from a distance, and 2) the ally being protected is adjacent. It does not require the protected ally to be targeted, it just has to be a proposed defender which means the character with Protector can choose to defend in its ally's stead and eat up the damage. Please note that this can only be done if the Protector character is outside of the AOE and its adjacent ally is the one affected. 3) The Protector ability can't be used if the character who has it is already a proposed defender like in the case of being affected by AOEs. The reason behind this is that there is only one attack made and all the characters in the area are affected all at the same time and NO damage is dealt not until each of those characters has made its defense roll.
The next time I bring my minions out on the field where shamans whimsically bolt Chain Lightnings and where Mages incessantly cast Flamestrike, I'm definitely bringing my Bulwark of Azzinoth
!