What HOA’s Need to Know about D&O Insurance

Good board members are hard to find never mind retain. The board is made up of volunteer unit owners responsible for enforcing the rules and by-laws of the association. Some unit owners view the board as a bit of a drill sergeant. In the rule-breakers eyes, the board does things too much “by the book.” Whether it’s collecting money or enforcing governing documents, there are many ways a unit owner can grow disgruntled.

In our sue-happy culture, no board member should serve without adequate Directors and Officers (D&O) insurance. Without it, members can be left paying legal costs, expenses and damages should the courts not rule in their favor.

Common Causes of D&O Insurance Claims

While they may be frivolous or downright wacky, a unit owner can claim just about anything. Most D&O insurance claims fall into one of the following categories:

Breach of fiduciary duty: A board member fails to act in the best interest of the association, and only looks out for himself. A breach would be offering a contracting gig to a family member as opposed to an impartial third-party more qualified for the job.

Breach of Contract: A unit owner can sue if the HOA has violated their own rules. If it says in the by-laws that the board member must also live on the property, a unit owner can sue if the truth is otherwise. Breach of contract can also be claimed if you’re inconsistent in enforcing rules.

Discrimination: Pretty self-explanatory, a unit owner can claim they were treated unfairly by the board based on their protected class status.

Harassment: A unit owner is violating condo by-laws about exterior decorations, and the board has made numerous attempts to contact him by phone, email and in-person visits. He views these check-in’s as intrusive, and claims the board is harassing him.

Misuse of Funds: A unit owner claims the treasurer of the board is using reserve funds for personal purposes and files a lawsuit.

Wrongful Foreclosures: A unit owner claims that the association is withholding maintenance/repairs, and therefore refuses to pay their condo fees. The association, knowing that all maintenance is up-to-date, willfully collects the unpaid condo fees as it’s their right to do so.

Lack of Reasonable Accommodations: A condo by-law says you can only have one dog, and a tenant far exceeds that number with 5. The tenant presents a note from their psychiatrist that says the dogs are ‘‘service dogs’’ for companionship. She sues the board for failure to provide reasonable accommodations.

What Does D&O Insurance Cover?

D&O insurance covers legal fees, settlements and other costs associated with defending a lawsuit in court. The cost of coverage depends on the size of the association, history of past claims, profit, and any mergers/acquisition activity.

Board members are the backbone making an association run. Giving them the protection of D&O insurance will ensure their safety while performing the multi-faceted duties of their positions. Contact Brian at 617-612-6515 or email him at briankilcoyne@hkinsurance.com for a free quote today.