Page 12 - New England Condominium September 2019

12 NEW ENGLAND CONDOMINIUM -SEPTEMBER 2019 NEWENGLANDCONDO.COM BOARD OPERATIONS Directors and Officers Insurance Must-Have, Or Luxury? BY A J SIDRANSKY At the heart of volunteerism is the no- tion of doing something for the common good. For many, choosing to live in a co- op or condo community is also choosing volunteerism – specifically, volunteering for board service. But within that sense of serving the common good lurks the pos- sibility of liability, and that’s what direc- tors and officers (D&O) insurance is all about. What’s D&O, and How Much Do You Need? In a nutshell, directors and officers in- surance is a form of liability coverage that protects the board members of a corpora- tion or association as indemnification for losses or advancement of defense costs in the event that a good-faith decision made by the board or board members results in damages of some sort. When it comes to D&O, Alex Seaman, Senior Vice President of insurance com- pany HUB International, recommends that typically, co-op and condominium associations in the New York area “should carry a $1 million limit. Co-ops and con- dos often also purchase an umbrella li- ability policy, which increases limits on both general liability and D&O liability. This increase can be anywhere from $5 million to $200 million, depending on what’s needed.” Seaman explains further that “umbrella policies are generally pur- chased through risk purchasing groups (RPGs), which combine top-rated insur- ance carriers, each taking a portion of the risk. This allows associations to purchase high limits of umbrella liability at excep- tionally low premiums. For example, a typical 100-unit property should be able to purchase $100 million of umbrella li- ability for a premium of approximately $4,000 per year. Based on these numbers, there’s really no reason not to purchase limits of at least $100 million of coverage.” Necessity, or Luxury? Ellen Shapiro, a principal with the law firm of Goodman, Shapiro & Lombardi, with offices in Massachusetts and Rhode Island adds that “condo associations are supposed to carry D&O insurance, but it is only statutory for associations of 10 units or more” under Massachusetts law. She absolutely recommends that all con- dominium associations carry it, regard- less of their relative size. If an association she represents, or might represent, does determined that the law was violated. ists in some form in most common law not have D&O insurance Shapiro says she Other types of D&O policies won’t even countries, including the United States, will advise them in writing to obtain it. Marc Schneider is Managing Partner at “D&O is not a free pass to do whatever derived from corporate case law, and es- Schneider Buchel, a law firm with offices you please,” he says. “Rather, it’s there for sentially holds that courts will defer to in New York City and Long Island. He when the board or the board members are the judgment of corporate executives – represents numerous co-op corporations sued for the decisions they make.” and condominium associations. Of D&O, he says: “It’s in place to cover the board partner with Robinson Brog Leinwand concerned. and board members from any lawsuits Greene Genovese & Gluck PC, a law against the directors and officers, exactly firm also based in New York City. “Every cords the directors of a corporation the as it says. However, it doesn’t cover ev- erything, meaning that a board might be surance. “It is incumbent upon the board formed by a genuine regard for the inter- sued for discrimination – for violating the to have it. If I represent someone who is ests of the constituents who voted them Fair Housing Act, for example, or denying contemplating becoming a board mem- a comfort pet – and claims are brought ber and their board doesn’t have it, I tell that the position is a voluntary and un- against it. Some D&O policies will give him or her not to run.” He explains that paid. the board a defense with what is called ‘a D&O coverage goes hand in hand with reservation of rights,’ meaning that they other coverages a condo or co-op should can demonstrate – and a court believes – will defend the suit because they have a carry, such as general liability, property, that a decision was made in good faith on duty to defend under the policy, but they and casualty. “If directors are sued as in- are reserving their rights, because if it’s dividuals, other coverages will not protect even if the result of the decision was a loss determined that the board violated the them in this capacity.” law, they will not pay any liability that results from the action. The reasoning is simple to explain: you can’t buy insurance body) may incur personal liabilities as a liable for those losses, and the board’s that covers you for breaking the law.” Schneider goes on to explain that while serving, and under the concept of bers and the corporation or association some policies will require the carrier to the business judgment rule. The business against out-of-pocket legal costs. defend the insured up until it has been judgment rule is a legal doctrine that ex- give a defense under those circumstances. Canada, Great Britain, and Australia. It’s Stephen Boonshoft is an attorney and members – where business decisions are board should have it,” he says of D&O in- Board Members and Individual Liability A board member (or the board as a rule. The board is not likely to be held result of the decisions he or she makes D&O policy will indemnify board mem- including co-op, condo, and HOA board According to the rule, the law ac- presumption of being motivated and in- into their positions. It does not matter As long as a board or board member behalf of the community’s greater good, or some type of damage, then the court generally defers to the business judgment If, on the other hand, a board or board