Why Community Associations Need D&O Insurance
Community association boards and their members have broad fiduciary responsibilities. This leaves them vulnerable to liability lawsuits from both residents and employees. Additionally, board members are typically volunteers who don’t necessarily have the knowledge or experience regarding good governance. It creates an even greater risk of liability claims against these non-profit organizations. The need for Directors & Officers (D&O) Liability insurance is a critical component of an association’s insurance program.
“Community associations are responsible for everything from creating annual budgets to collecting dues and fees, maintaining common areas, and adopting and enforcing their governing rules and regulations,” explained Winston Urwiller, D&O and Crime Product Manager at Distinguished Programs. “We live in a highly litigious society with individuals quick to file claims and lawsuits. Also, when homeowners or employees decide to file a complaint or sue an association, they don’t consider the members’ intention or hard work. D&O insurance protects the association and its members against the financial burden of legal expenses to defend a claim and the potential for large payouts.”
Common D&O Claims Filed Against Community Associations
The types of D&O claims filed against an association and its board members range widely. This can include:
- allegations of discrimination
- conflicts of interest
- mismanagement of or improper use of funds
- improper assessment application
- lack of oversight, breach of contract
- failure to properly notice elections, and
- anything related to the board’s failure to adhere to its statutes and bylaws and governing documents.
Some lawsuits can involve small issues but nevertheless result in expensive legal fees to settle a dispute while others can lead to severe losses. With any claim, if the proper D&O insurance is not in place, the association and board members will be putting their assets at great risk.
Understanding What’s Covered in a D&O Insurance Policy
It’s important for community associations to understand the coverage needed, who should be covered, how coverage is triggered, and what’s excluded under the policy. It’s also critical an association carry proper liability limits.
For example, review the named insured under a D&O policy. Coverage should include current and former directors and officers, committee members and other volunteers, employees, and the manager and management company.
Also, some policies may not provide coverage for non-monetary claims. Although a dispute may not involve a financial loss, it still requires payment of legal fees to settle the claim which can add up. You don’t want an association and its board members to pay for these expenses out of pocket.
“Another area of concern is how a policy reimburses for defense costs,” said Winston. “Some policies include defense limits within the liability limits while other policies are written with defense limits outside the liability limits.”
A Standalone D&O Policy Is a Better Fit for Community Associations
Many associations obtain D&O coverage embedded in their package policy which typically provides adequate coverage. However, a standalone D&O policy provides the breadth and depth of coverage to better respond to its needs. “It’s also important to work with an insurance carrier that specializes in handling community association claims,” Winston noted.
Distinguished Programs offers a comprehensive D&O insurance program for community associations. Our program caters to HOAs, CO-OPs, POAs, commercial condominiums, COAs, PUDs, timeshares/intervals, and mixed-use condominiums. Our footprint is national and with an A+ rated carrier and coverage limits are available up to $5 million.