Directors and Officers Insurance for Your Condo Association

image of a board room meeting If you joined the volunteer board of your condo association, you likely have good intentions. You care about your community, want to see it improve, and are willing to invest time and energy in it. Unfortunately, lawsuits are filed everyday against volunteer board members. They are usually based on allegations of negligence, whether minor or major, in regard to one or more facets of your condominium complex. Having good intentions isn’t enough to protect you in our sue-happy world. Having good insurance is going to beat having good intentions every time.

Understanding Directors and Officers Insurance

Condo associations are governed (usually) by a private board which is selected from among the residents. Serving on this board requires a sacrifice of time, energy, and a certain level of patience. However, it also takes a willingness to be exposed to lawsuits. In fact, a resident, unpaid, volunteer condo association board member is held to the same standard as the board member of a corporate business in the eyes of the law. Because of this, it’s just as important for a condominium board to have Directors and Officers insurance (D&O) as it is for the board at a large corporation.

Legal Risks for Board Members

When you become part of a board, you essentially become a fiduciary. We have seen cases in which a petty grievance led to legal action. For instance, say someone doesn’t get elected to the board position they want. If they notice the board is not following its own by-laws, they would have just ground to bring legal action against the board. It wouldn’t be the first time a condo association was forced to conduct the elections a second time.

Common Lawsuits Against Condo Insurance Boards

In addition to obvious things like libel, failure to pay debts, or any willful wrong doing, here are ten of the top allegations that the board members of a condo association face and why they need directors and officers insurance:

  • Improper management resulting in losses
  • Gaining personally from your performance as a director or officer
  • Being uninformed of HOA books and/or records
  • Not verifying official documents before signing or neglecting other forms of due diligence
  • Disregarding governing documents
  • Performing duty with a conflict of interest
  • Carelessness in conducting business or legal matters
  • “Failure to see what would be obvious by merely looking” (a form of negligence)
  • Ignoring or inducing careless wrongdoing
  • Mismanaging employees

While you may read most of these and think that you would never do such a thing, this list demonstrates the many pitfalls of being a fiduciary. A simple misstep – or the appearance of one – will find you on the bill for legal expenses or even worse.

How Does Directors and Officers Insurance Protect You?

There are many things that can be done to protect yourself. For instance be serious about following the rules, obeying all applicable laws, electing serious members, keeping good records, updating rules, and get professional help with areas like accounting, legal matters and insurance. However, you also need to have D&O insurance. This insurance will protect you from legal costs incase an action is brought against the board. It can cover costs for both civil and criminal claims as they often are brought against a board of directors at the same time.