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Directors and Officers Insurnance - Part 1

What homeowner associations need to know about Directors' & Officers' liability- Part 1 of 3

What is Directors' & Officers' Liability Insurance?

One of the most important insurance policies in any homeowner association’s financial portfolio is also one of the most overlooked and misunderstood: Directors’ & Officers’ (D&O) Liability Insurance.


A good D&O liability insurance policy protects both past and present HOA board members, the property manager, employees, volunteers, and the community itself from lawsuits arising out of the management of the HOA.  This could include any number of HOA-related issues, such as a new building project, a foreclosure against a property owner, or a complaint filed by a homeowner.


The question arises are all D&O liability policies the same? The answer is no. Depending on the insurance carrier, there can be a broad range of differences between what each D&O policy covers and what they exclude.


One quick way to tell if your HOA's D&O liability coverage is sufficient is to determine whether you have a separate "stand-alone policy" or if your D&O has simply been added to your HOA's commercial property and liability package policy (G&L).


Many Boards often develop a false sense of security regarding their D&O coverage. They see it included with their G&L insurance package and think that they have sufficient coverage.


In today’s litigious society the two biggest D&O claims against HOAs in the country are non-monetary and discrimination claims. Both are specifically excluded from the vast majority of commercial package policies on the market, including those written by recognizable, brand name insurance companies.


Simply stated, a stand-alone D&O liability policy underwritten by a reliable carrier is the best protection to protect the HOA.  It provides coverage for claims not covered by most other insurers, like discrimination and non-monetary claims. The importance of D&O deserves its own stand-alone policy.


How are HOAs affected by discrimination litigation?  One of the most common D&O claims facing HOAs today are lawsuits for discrimination, which in this case has nothing to do with race, gender or sexual preference. They typically involve a property manager doing a drive-through of the community and taking note of a violation of the community bylaws-such as a home painted purple.  They proceed to send the homeowner a letter asking them to put their property into compliance with the HOA's governing rules.  The property owner in turn feels they are being discriminated against and files suit


As an example, a Board may disapprove an ARC application to an owner yet unbeknownst to the present Board a prior Board approved an identical ARC to another owner in the HOA. This type of action can easily open the door for a discrimination lawsuit. The Board told one owner they could do something and then denied another owner the same privilege. A precedent has been established. Unfortunately the present Board was totally unaware of what prior Boards had done and this is where Boards find themselves in legal trouble.

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