D&O Insurance: 5 Scenarios Where Associations Needed Coverage

Directors and Officers (D&O) insurance is big business for brokers — according to a report by A.M. Best, the D&O insurance market is expected to reach $18.2 billion in gross written premium by 2027. It also should be a no-brainer decision for the association’s board of directors because it’s effectively a safety net for them. However, just because it should be obvious coverage doesn’t mean that some board members won’t balk at the cost of the necessary coverage amounts for their particular association.

A lot of your client’s reticence may come from not appreciating the amount or variety of litigation they’ve opened themselves up to as a board member. Decisions they make can be construed as a wrongful acts or discrimination. Some homeowners may also sue just to change a rule they don’t like. It’s not even that many of these lawsuits will be successful; however, D&O insurance will cover the costs of defending board members from these lawsuits, which can drag on for years and cost tens or hundreds of thousands of dollars.

These five examples of Directors and Officers Insurance will help convince your clients of the importance of investing in a D&O policy. Each one showcases different situations in which a board member has been or could have been personally sued because they’re on a community association board. These examples will help drive home board members’ legal threats, so they understand why they need D&O coverage.

1. A Sewage Leak Destroys a Bedroom … but Not an Association

Any community’s worst nightmare is a sewage leak caused by backed-up pipes. In this case, a resident had their bedroom and bathroom destroyed by kitchen sewage from the unit above.


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Backups had been a chronic problem in the building, and the community association board had recently hired a plumbing company to regularly inspect and resolve any issues. Unfortunately, their cleaning directly led to the deluge of sewage in the private condo residence below the work. It also later turned out that the company hired didn’t do their job properly, leaving the lines clogged.

A lawsuit was filed after the association couldn’t get insurance to pay for the damages (complications had arisen due to the board changing insurance providers after the first instance of a sewage backup). At least one of the directors was named in the suit.

In this case, the board members seemed to do everything they could to remedy the problem. Yet, one of them still ended up in court. So even if the board is well run and prudent, bad luck can be a driving reason for obtaining D&O insurance.

2. Potential Wrongful Act Leads to Nightmare

Volunteers for boards are exactly that — volunteers. This isn’t their full-time job, and so things that should get fixed don’t always get dealt with as quickly as they could be. Usually, this is fine, but sometimes it leads to disaster, like in this Texas association.

The problem began with a gap in the fence surrounding the association pool. This issue probably wasn’t seen to be that major in the grand scheme of things and was left to be fixed another day. Unfortunately, a 13-year-old boy with autism snuck in after-hours and drowned.


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After the horrific incident, the board shut the swimming pool and boarded up the gap. The parents also filed a lawsuit against the association and the community management company, claiming negligence.

This terrible tragedy shows just how easily something small can cascade into a life-altering event. Board members aren’t perfect. They make mistakes and bad judgment calls that can get people hurt or worse. It’s important always to act preventively to make sure damage doesn’t happen, but in case it does, D&O is there to protect personal assets in case of liability.

3. Making Changes Without a Vote

Although the rules vary, a board generally needs approval from members before making material changes to the property. However, where does the line between material and immaterial lie? Taking every little decision to the members can slow things down and, frankly, be a pain for homeowners that don’t always care. However, going too far the other way opens the board up to lawsuits, as one Florida association found out.

The condo association chose to change the pool area without first asking residents. These changes affected the chairs, cushions, stairs, and filtration system.


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This probably was a welcome change or no big deal to many residents. However, some felt they should have been consulted before the changes were made. They made their opinions known through a lawsuit that named the board president. A court agreed with them, and the board was forced to return the pool area to its original state.

What many people forget is that board members are volunteers, not experts. Ideally, this board should have called for a vote, but it’s understandable that they didn’t. Having D&O insurance is a safety net in case the board oversteps its legal bounds unwittingly.

4. When Homeowners Go Rogue

Rogue homeowners can be one of the most frustrating things for a board to deal with. These people have decided that it’s their life’s mission to fight the board, no matter what it costs.

In one instance, a homeowner and board members battle started with flower pots and ended with almost a million dollars on legal fees.


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Initially, this seemed to be like any other dispute between an association and a resident. The owner moved in and hadn’t followed HOA rules surrounding items such as his garden, overnight parking, and satellite dish placement. The biggest problem was a flower bed wall that he installed. He says he had permission. The board says he didn’t.

Things should have de-escalated from there. The owner could have removed the wall, or the board could have found a way to come to a compromise. Instead, seven years of court battles led to the historic $1,000,000 in legal fees. When asked why he continued the lawsuit, he said, “I have to do the right thing, and this is the right thing.”

It doesn’t appear that the owner chose to name specific board members in his crusade. However, it’s not uncommon for unhappy homeowners to sue the board and specific board members or employees personally. Even if they know they have no hope of winning, just the act of fighting back can be the goal. Directors and volunteers want to ensure they’re covered by D&O insurance if they’re drawn into one of these personal vendettas.

5. Using Lawsuits to Bully the Board

Oftentimes lawsuits are filed against a board to bully them into making changes. Homeowners who sue hope that their case will frighten the board into doing what they want. This tactic hurts the board financially and also leads to undue stress for board members just trying to improve their community.

For instance, this community association in South Carolina has been under attack by a single resident who has sued the association multiple times over several years. However, the owner doesn’t sue the board as a whole. Instead, he sues the board members directly for claims like defamation, bylaw disputes, and breach of duty.


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These lawsuits have led to legal bills that total more than $50,000. Without insurance coverage, this bill could put many associations in the uncomfortable position of raising dues on owners just to cover the costs. It has also put a chilling freeze on owners willing to volunteer on the board of directors. In 2019, only one person volunteered to join this association’s board, which could leave the board with a massive leadership gap to fill.

No one expects something like this to happen in their community when they decide to volunteer for the board. However, if it does happen, the board needs to be prepared with the proper insurance coverage. Comprehensive D&O insurance gives boards the peace of mind they need to get their jobs done fairly and without interference from owners with a bone to pick.

Learn More About Directors and Officers Insurance With Distinguished

Distinguished offers a standalone D&O insurance policy specifically tailored for community associations, including HOAs, COAs, and more. It also includes a legal concierge service to answer your client’s questions and industry-leading expertise in what community associations need for insurance coverage.

If you’d like to learn more, check out our D&O policy page, register your brokerage, and submit your business online through our Broker Portal.

About Distinguished Programs

Distinguished Programs is a leading national insurance Program Manager providing specialized insurance programs to brokers and agents with specific expertise in Fine Art and Collectibles, Environmental and Construction Professional, Executive Lines, Inland Marine, Real Estate & Builder’s Risk, Community Associations, Hotels, and Restaurants. Property and Liability products are distributed through a national network of agents and brokers. Serving the same core markets and partnering with the most stable and reputable carriers, Distinguished’s high-limit Umbrella programs remain the clear choice in its area of specialty for superior coverage, competitive pricing, and attentive service. Through thoughtful innovation, stemming back to 1995, Distinguished Programs fosters growth and opportunities for its brokers, carriers, and employees.

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