Directors and Officers (D&O) Insurance

Communication Community Associations Condominium Associations HOA HOA Board of Directors HOA Management Companies

Do you have the proper coverage to protect volunteers as well as committee members?
One area of community association insurance that is always a little vague to most of us is liability coverage for elected board members, as well as insurance coverage for appointed officers, and committee members operating under the jurisdiction of the board.
What is Directors and Officers (D&O) Insurance?
Directors and Officers Liability Insurance provides protection for the directors and officers of your association in the event they are sued in conjunction with the performance of their duties. Think of Directors and Officers Insurance as a business’ Errors and Omissions policy. The two are not synonymous, however. Errors and Omissions is concerned with performance failures and negligence with respect to the association’s products and services. Errors and Omissions addresses the performance and duties of a business such as your management company. Directors and Officers Liability Insurance can include Employment Practices Liability and Fiduciary Liability. Since community association board members and officers could be held personally responsible for acts of the association, most will demand to be protected and are not willing to risk their personal assets to serve on a board or committee without such protection.
How is D&O Insurance applicable to Committee Members?
Generally speaking, when committee members have been appointed by board resolution, are operating under clear and appropriately drafted charters, and are conducting activities in conjunction with the charter, liability insurance usually is in place for all of these members. A common example would be an Architectural Control Committee (ARC) making a decision at a duly-called meeting, and the affected owner challenging the individual committee members in court because of perceived selective denial of his application
Activities of other committees may not be so clearly defined. For example, when a member of the “Welcome Committee” visits a new owner and words are exchanged regarding the deteriorating or unattractive condition of the owner’s lot or home, could the new owner feel as though the visit was harassment, racial discrimination, etc? How about a scenario wherein a Pool Committee member decides to discipline a youngster who was running at the pool, by sending the child home, or making the child stay out of the water for 30 minutes. Did the Pool Committee member have the authority to police the pool area or just to establish the Pool Rules? The association itself likely will be covered under even the most serious circumstances, but what if the owner sues the committee member personally? These are all important aspects to consider when working on a committee. Asking both your and your association’s insurance agent for details on committee member liability insurance coverage is paramount to a sound risk management program.
What are the key questions to raise when reviewing your D&O policy?
• Are unpaid officers, board and committee members covered by the D&O Policy?
•  If not, what types of insurance coverage can be provided that adds that extra protection for the association?
• Do the association’s governing documents provide an automatic indemnity for directors and officers?
• Does the policy extend coverage beyond the board member’s term of service?
• Does the policy extend coverage beyond the policy period if circumstances that might give rise to a claim are disclosed during the policy period?
• Is there a minimal deductible per board member?
• Does the policy also feature a low aggregate applicable to one occurrence?
• Can the Board of Directors choose their own legal representatives when defending a claim?
• Does the policy cover legal costs incurred through investigations that DO NOT result in litigation?
• Is the limit of liability for a single loss, or for total losses during the policy period, set at an appropriate level?
• Does the policy have any unusual exclusions?
Clearly, the best course of action is to remind directors, officers, or committee members who are looking after an association to only act within their established authority, commit the association to transactions or agreements that are within the law and authorized in the governing documents, and avoid placing themselves in a position in which their personal interests conflict with those of the association.
The association, through the board of directions, should adopt concise committee charters, detailing the specific areas of responsibility, and requiring committee members to sign a copy of the charter acknowledging its provisions. As always, it is critical to review the association’s governing documents to determine the legal structure of committees, areas of permitted activities for those members, as well as the authority the directors and officers to establish and oversee committees.
This article is provided by Associa.