Protection for the Board - D & O Insurance
We receive many calls from board members of homeowner association clients inquiring about complaints made by unhappy members of their communities and threats of lawsuits against the directors. The complaints run the full gamut from failure to enforce the governing documents, to unfair enforcement of the governing documents, to failure to abide by the governing documents or CCIOA, or any of a number of other complaints. Being a lawyer, I generally answer their question with one of my own – “You do have D & O insurance in place, don’t you?” I get a little worried when the answer is another question – “What’s that?”
“D & O” is shorthand for Directors and Officers liability insurance, which provides coverage for liability incurred by the association’s directors and officers due to acts or omissions of the insured parties. Typically, the insured parties are the association, directors, officers, employees, volunteers and committee members. However, the policy should be reviewed to make sure it does.
Often certain insurance carriers’ D & O policies only cover monetary losses resulting from the acts or omissions. While such coverage is certainly necessary, unfortunately it doesn’t cover many of the claims made against directors and officers. Some of the most frequent claims made against directors include the following: (1) failure to enforce the restrictions or rules; (2) failure to comply with the governing documents and laws in connection with the election of directors; and (3) failure to provide documents or records in accordance with the governing documents and laws. Typically, none of these claims include requests for monetary damages to compensate the complaining party; rather, they are asking the court to direct the board to do something specific – referred to as non-monetary claims. If the D & O policy only insures against monetary claims, none of these claims would be covered by the association’s insurance, and the association will be forced to spend its own money on attorneys’ fees to defend the claims. The point here is to make sure that the association’s D & O policy covers non-monetary claims as well as monetary claims.
There are other important characteristics of good D & O policies. They should cover (1) discrimination, sexual harassment, and wrongful termination; (2) defamation; (3) publishers liability and copyright infringement; (4) coverage for failure to provide adequate or proper insurance; (5) provide a duty to defend; (6) coverage for the association’s manager as an additional insured (this is often a requirement under the management contract); (7) provide defense costs outside the limits of the D & O coverage; and (8) defense coverage for breach of contract claims. These are all items that would be covered under a comprehensive D & O policy.
If you have questions about your D & O insurance (you do have it, don’t you?), you should contact your association’s insurance agent or give us a call.