Ahhh, lawsuits. People suing people. Companies suing companies. People suing companies. Residents suing boards. A quick surf of the Internet and you can find many instances across the country where condo boards are sued. You can also find multiple lawsuits in which boards are sued for possible misappropriation of funds. Lawsuits are scary and potentially financially damaging—but the good news is that there a special insurance—called directors and officers liability insurance—just for boards that protects them against this possible litigation.
“D&O insurance is liability coverage to protect trustees against claims brought as a result of their failure to carry out their fiduciary obligations,” says Jeff Grosser, vice president and partner of Rodman Insurance Agency, Inc. in Needham, Massachusetts. “The policy provides coverage for defense costs and/or settlements resulting from those claims. The more comprehensive D&O liability policies include the managing agent as additional insured and provide coverage for both monetary and non-monetary damages as well as employment-related claims.”
Joel Meskin at McGowan Program Administrators in Fairview Park, Ohio, says that to understand D&O insurance, think of a puzzle. “The community association insurance puzzle is made up of a number of policies,” he says. “The genesis of the D&O coverage is to provide two protections: First, to defend a claim. Second, if the board member, the board or the association is found liable by judgment or a settlement is determined to be appropriate, to pay those amounts on their behalf.”
Directors & Officers Insurance
Is D&O insurance required? “Condominium documents usually provide that the board of trustees will obtain liability insurance that covers the trustees, i.e. D & O coverage,” says Michael Phillips, chief operating office at The Copley Group in Boston, which manages about 20 associations representing nearly 2,000 condominium units in Eastern Massachusetts. “Minimum amounts are usually specified and the documents usually empower the board of trustees to obtain such other insurance as they consider necessary.”
But this isn’t always the case. “The ‘Insurance Section’ of the condominium bylaws does not always specify that the board must carry D&O liability coverage specifically,” says Grosser. “However, there are typically requirements with regards to the scope of property coverage and the need for other coverages including General Liability, Crime, Workers Compensation and Flood. Crime coverage protects an association against the dishonest acts of its trustees and/or its managing agent (if added by endorsement). The coverage is required by both mortgage lenders and Massachusetts condominium law.”