Homeowner Association and Condo boards have a fiduciary duty to act in the best interest of the community as a whole, follow the law, and protect the assets and financial stability of the community. Proper insurance plays a major role in fulfilling that duty. But many board members are unsure if they have the right coverage — even worse some think they’re covered when they really aren’t.
This is especially true when it comes to Directors and Officers insurance. The HOA D&O insurance policy is a small but critical part to an association’s insurance coverage. It is important, because it protects the community members who serve voluntarily to manage the association. This coverage can vary substantially from insurer to insurer.
Choosing the right agent can solve many of these issues from the start. A good agent will know and understand the differences in policies and help you find the best policy for your association. A good agent will also have a variety of policy options not just an embedded policy that’s built into the business owner’s policy. A stand alone policy will cost more but they are designed for HOAs and will typically provide better coverage.
Many HOAs end up without proper D&O insurance coverage because they don’t ask the right questions. Asking these questions will help you determine the best coverage for your association. After all, what you don’t know, can hurt you!
- Is the policy an embedded, or stand alone policy
- Does the policy extend to volunteers & employees
- Will it cover spouse of directors and officers
- Will it provide defense above the stated limits
- Does it cover both monetary and non-monetary
- Does it cover a property manager
- Will it cover failure to maintain adequate insurance
- Will it cover libel and slander
- Will it cover discrimination
- Will it cover improper management
- Will it cover breach of contract coverage
Price over coverage. Too often boards feel that their primary responsibility is to find the best price for insurance. But with D&O insurance simply choosing the cheapest policy could result in having a policy that doesn’t cover everything you may need it to. These gaps in coverage can cost associations and board members a lot of money in the long run
Untimely reporting of a claim. D&O policies are normally claims made and reported policies. In brief, the policy provides defense and indemnity for a “wrongful act” (the board’s alleged mistake) for a “claim” (demand that the board do or not do something about the mistake) made during the policy period and reported to the insurer during the policy period. This policy is different than most associations or their attorney are familiar. As a result, many claims that would ordinarily be covered are denied because they are not reported in a timely fashion. Accordingly, it is critical to understand in each policy how “wrongful act” and “claim” are defined and what the reporting obligation is. Insurers and courts have no mercy for and have upheld stringently the reporting requirements of these policies.
Lets face it, HOA D&O insurance isn’t sexy and most HOAs don’t concern themselves with the details of a policy that is probably not much more than $1000 per year. But, if you take the time to review your HOAs D&O policy it could save the day in the event of litigation against the board, and who knows, maybe you’ll sleep better at night knowing you’re protected.
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