Many people are familiar with insurance and the different types of policies you can get. If you own a home or a car, you’re familiar with homeowner’s and car insurance; if you’re involved in activities that can have risk, then you’re familiar with liability insurance. However, many HOA members are unfamiliar with a type of insurance called Directors’ and Officers’ (D&O) liability insurance. If you have any intention of serving on your HOA board, you need to know about it.
What is it?
An HOA’s board members are typically comprised of volunteers from the community or neighborhood it serves. While this is typically an admirable act of service, this unfortunately does not protect the board member from being sued or finding himself or herself on the wrong end of a lawsuit. Directors’ and Officers’ liability insurance is there to protect those members in the event of a lawsuit.
Often overlooked in an HOA’s financial portfolio, a good D&O policy that protects both past and present HOA board members, the property manager, employees, volunteers, and the community from HOA-related issues is vital. Without it, any HOA board members would be personally responsible for any legal and settlement costs that accrue from a lawsuit. Some HOA-related issues that could result in lawsuits include new building projects, foreclosures, or a complaint from a fellow homeowner.
What does this policy cover?
Typically, D&O policies cover any legal costs and fees related to defending HOA board members in the lawsuit and provide payment for any judgment amount. However, some policies differ on whether legal costs are covered if the case settles. Make sure all of your board members are aware of how much financial coverage the insurance policy will provide.
Every lawsuit can require a different type of legal counsel. For example, a board member may just need an attorney to assess a potential lawsuit, or a case may settle before going to trial. No matter what your legal strategy may look like, it will be costly, and you don’t want to have to personally pay for a lawsuit that is directed towards your volunteer work for the HOA. Finally, be familiar with any claims that your D&O coverage might exclude, like negligent or fraudulent acts. It’s important that all board members are fully aware of the coverage’s limitations.