Today we want to highlight the ways lawsuits can affect your insurance coverage, and what may happen if you are not adequately covered. Over the years HOA management has grown more complicated, with lawsuits and foreclosures being more common. Although no one ever wants to be found in this position, professionally or personally, your board needs to consider the possibility and make sure you’re adequately covered. The first step is buying a directors and officers liability insurance policy.
Directors and officers insurance – also known as D&O insurance – is a type of coverage that protects board members from being held liable while performing their duties as outlined by the governing documents. Without this coverage, individual board members are vulnerable to personal lawsuits from homeowners who are fighting to stay in their homes (foreclosure) or homeowners who’ve invested money in something that wasn’t approved though proper channels.
If you’re debating whether you need D&O insurance, here are three reasons we believe this is a must for any HOA!
- Protects individual board members from intimidation tactics. Having insurance won’t prevent personal lawsuits, but it will slow down lawyers who try to bully board members into giving homeowners what they want just to prevent being sued.
- Protects board members from being a target when homeowners are fighting foreclosures or liens to stay in their homes.
- Good coverage helps recruit qualified and talented people to sit on the board. Without D&O coverage many HOAs struggle to fill their board because people aren’t willing to risk the personal liability.
There are lots of reasons to carry this kind of policy, and frankly there really aren’t any good reasons not to carry D&O coverage. It is relatively inexpensive, and the benefits outweigh any cost. Your HOA needs to remember that it is just as important to protect board members as it is to protect its physical property.
The next question we get the most is, “How much coverage is necessary?” While every association’s needs are different, here are the key things you need to watch out for:
- Make sure you get coverage that protects all association employees, board members, volunteers, and committee members from wrongful termination, sexual harassment, discrimination, and mismanagement of funds lawsuits.
- You’ll probably need a minimum of $1 million per person, per event. It may sound like a lot, but legal fees add up quickly! This amount will vary by board/community, but $1 million is a good place to start the conversation with your agent.
- Consider an umbrella policy. For small associations with minimal obligations a $1 million plenty policy is plenty, but for large associations it probably isn’t enough. Having an umbrella policy in addition to D&O coverage is a good way to stay in budget and manage risk since most boards are sued for non-monetary things like violations. You’ll have the additional coverage you need without breaking the bank!
A successful association prioritizes protecting its people as much as it does its property. We encourage you to take time to meet with your insurance agent to discuss the needs of your community, making sure you’re adequately covered and that your community is managing risk properly!