Co-Op Directors & Officers Insurance Checklist

Despite good intentions and performing their duties to the best of their abilities, HOA boards are being sued with increasing frequency. The good news is, affordable Directors & Officers Liability Insurance is available. It protects the HOA and board members from lawsuits resulting from actions or decisions made while serving. The bad news is that many homeowner associations do not have adequate protection. Without the right insurance, personal assets could be on the line.

Not all Directors & Officers insurance is created equal. There are no "standard" D&O policies. As a result, doing apples to apples comparison can be tough. But some basics: Avoid D&O coverage as an add-on or endorsement to a package policy which, generally speaking, is inadequate. Many add-ons and endorsements exclude defense coverage for non-monetary claims. Considering that 75% of HOA claims involve suits for non-monetary damages, this could be a big exposure that comes back to haunt you. Instead, look for a stand-alone policy which provides better coverage for a minimal, if any, cost difference. Work with an underwriter who knows real estate and has experience writing HOAs.

The Most Frequent D&O Claims 

1. Breach of Fiduciary Duty (examples): 

  • A board member approves one color for the whole condominium association, but his unit gets its own shade.

  • The president hires his brother-in-law's pool maintenance company without disclosing the information to the board.

2. Breach of By-Laws (examples): 

  • Not enforcing the architectural policy for a unit that failed to submit plans prior to making changes.

  • Failing to obtain board approval prior to hiring a contractor to do some work.

  • Failure to provide access to members of the books and records.

3. Wrongful Employment Practices (examples):

  • Wrongful termination

  • Sexual Harassment

  • Unfair Hiring Practices

How Claims Work

Directors & Officers insurance is a "claims-made" policy. If the board suspects that a situation could lead to a claim, it should immediately notify the insurance agent. The report of a potential claim will not impact the HOA's insurance rates.

Choosing Policy Limits

Limits vary from policy to policy - ranging from $1 million to $5 million. These limits may be extended by most Commercial Umbrella policies. Look for a policy that does not diminish the limit of liability for defense. While the "right" limits depend on your situation, it is rare for any D&O claim, defense and/or indemnity to break the $1 million mark.

Directors & Officers Liability Insurance Checklist 

Make sure it provides coverage for:

  • The HOA as an entity

  • Past, present and future board members

  • Property manager

  • Builders and developers serving on the board

  • Volunteers, committee members, employees

  • Defense for both monetary and non-monetary claims

  • Defense costs associated with breach of third-party contract claims

  • Pays on the HOA's behalf so there is no waiting to be reimbursed

  • Provides coverage for defense costs that is in addition to the limit of liability and is not subject to a deductible

  • Contains broadly defined protection for claims related to Employment Practices Liability, such as wrongful dismissal, discharge, termination and sexual harassment

  • Includes coverage for prior acts

  • Enables the HOA to choose their own attorney

Insurance is Only the Beginning

Finding the right Directors & Officers Liability Insurance is critical, however, there is a lot you can do in terms of risk management and loss control to limit the odds of being involved in a suit such as:

  • Elect board members who are serious and understand what their responsibilities will entail.

  • Provide education and training for board members.

  • Make sure board members have a good understanding of the HOA’s governing documents.

  • Use a knowledgeable attorney and other professionals if decisions are outside of the board's expertise (many are).

  • Require new owners to read and sign off on the governing documents and rules.

  • Provide processes that allow members to address problems or grievances. Communication can keep small issues from becoming big ones.

  • Review governing documents periodically to ensure they are in compliance with state and federal statutes.

  • Keep good records and meeting minutes.

  • Maintain records of complaints and how you responded.

  • Keep emotions and personalities out of the equation.

Directors & Officers insurance is a fundamental coverage that no HOA should be without. When you shop for it, use this checklist to ensure you get the kind you need. Contact us if you have any questions. 

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