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Subject: Indemnity vs D&O Liability Insurance
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Author Messages
BethS2
(Texas)

Posts:19


03/25/2010 1:22 PM  
I am a member of a newly elected board and have been trying to convince them to buy D&O Liability Ins. I just had a thought this morning though: Since our by laws contain a thorough indemnification clause - one that INCLUDES paying for the defense of any board member or officer - would that not deter lawsuits from happening more than if they knew the insurance would cover it? We are a small complex of 10 units and the main threat of lawsuits come from owners that own 2 or 3 units. Would they not have to pay their own legal fees PLUS 2 or 3 tenths of the defense fees if they brought a court action? Maybe this is better insurance than the D&O.......?

Any thoughts or experiences on this are welcome.
DanielH1
(California)

Posts:481


03/25/2010 1:39 PM  
Two shields are better than one.

You can't guarantee (or even hedge) what another person/owner will do. Maybe they are willing to pay. Maybe their brother is a lawyer so they get it for free.

Board Members might (should) think twice about joining a Board that doesn't provide such basic insurance for them.

The minor expense of the premiums will be worth the major expense of a lawsuit. You insure, not because you expect a lawsuit, but because the lawsuit would be devastating.
RogerB
(Colorado)

Posts:4882


03/25/2010 1:43 PM  
Beth, you need both D&O insurance and indemnification. They may not deter a suit; their purpose is to protect the association and the Board in case there is a suit. The indemnification should be included "as a corporate shield" in articles of incorporation plus the indemnification clause in your Bylaws. Members who bring a law suit against the association and the Board would pay depending on the outcome of a trial. If the Association loses a suit all members would pay equally for any costs not covered by insurance. If the 2 or 3 units lose they would pay their attorney fees and court costs PLUS they would also pay all association legal costs awarded by the Judge.
BethS2
(Texas)

Posts:19


03/25/2010 4:14 PM  
Thanks.

So the vote is in: 2 board members vote AGAINST getting the D&O. I am the only one who votes yes. So I guess that means my options are: resigning from the board, staying on and taking the risk without it, or defying the vote and buying it anyway.

I guess the last option is legally wrong? At what point does fiduciary duty supersede board votes? For example, these same 2 board members refuse to fix dangerous stairs, replace molding drywall, and other such obvious wrongs. At what point am I legally 'permitted' to act in the interest of safety above these kinds of votes?
RogerB
(Colorado)

Posts:4882


03/25/2010 4:23 PM  
Beth, those two Board members are ignorant of the jeopardy they are selecting. I would not serve on a Board which did not have D&O insurance plus indemnification. The insurance is the first priority; indemnification is secondary IMO.
GlenL
(Ohio)

Posts:5127


03/25/2010 8:53 PM  
Beth what do your documents call for? In addition to the indemnification clause ours spells out the minimum insurance the BOD is required to maintain and D & O is in there. Also while the judge is not required to grant them, the winning party in a lawsuit can request that their legal fees be paid by the loosing side. And if the other’s sued the HOA and won they could be exempted from paying their “share” of the settlement.

"Common sense is like deodorant--the people who need it most never use it."
BethS2
(Texas)

Posts:19


03/26/2010 9:14 AM  
Glen: Unfortunately, no mention of D&O in insurance requirement. It is optional. It has been voted to NOT obtain it.

Everyone advises me to resign - on here, the insurance agent, and lawyers.
What is the best way to resign? Is email an okay way to notify them?
BethS2
(Texas)

Posts:19


03/26/2010 9:15 AM  
I agree......but what can I do? It was voted NOT to obtain it.
RogerB
(Colorado)

Posts:4882


03/26/2010 11:49 AM  
Beth, check your Bylaws for the proper way to resign from the Board. It probably requires notification in writing. But first check your Declaration of CC&Rs and Bylaws to see if they require insurance. If either does, send that information to the other 2 Board members with a request to comply with the rules or else suggest they resign from the Board.
BethS2
(Texas)

Posts:19


03/26/2010 12:36 PM  
Roger,

There is no provision in the CC&Rs or Bylaws that outline how to resign from the Board. The only required insurance in the documents is common area liability and property damage.

This board completely disregards the documents anyway. This is the first board since 1978 (I organized the establishment and vote). The 3 of us were voted in December 6, 2009 and the same two other board members continue to refuse to meet. All communication is by email. They have refused my requests to hold a meeting, elect officers, do repairs of safety issues, and now purchase D&O Liability (can you guess why I wanted it?)

I guess the safest is to send my resignation by certified mail.

Maybe I can be more effective as an owner NOT on the board?
Any ideas on this?
RogerB
(Colorado)

Posts:4882


03/26/2010 12:48 PM  
Beth, as a concerned member of your HOA I would encourage you to not resign but to try to get rid of the other 2 Board members. Do your Bylaws state how often to have Board meetings? Some Bylaws require at least quarterly Board meetings. If your do, and if the Bylaws state Board members can be removed if they miss X number of Board meetings, then your HOA can get rid of the two other Board members and replace them with responsible Board members.
MichaelK11
(Texas)

Posts:432


03/27/2010 3:22 PM  
Your Bylaws probably have a provision for how the Membership can remove Directors (Board Members).

We removed ours via a petition signed by over half the eligible homeowners.

Your Bylaws probably have a provision for what happens when Directors are removed; replacements are probably selected by the remaining Directors. If that's right, and you and your neighbors remove the other two, then you can select who replaces them. Make sure you have neighbors willing to serve.

Have you shopped insurance agents for D&O policies?
GlenL
(Ohio)

Posts:5127


03/28/2010 11:53 AM  
Beth while reading through the proposed bill for Ohio HOA’s I had a thought, which in my case is always a dangerous thing. The proposed law requires a HOA to have D & O insurance so you should check the Texas HOA statutes that apply to your community if any; along with the Texas non-profit corporation statutes and see if either of them requires D & O insurance.

"Common sense is like deodorant--the people who need it most never use it."
BethS2
(Texas)

Posts:19


03/28/2010 12:37 PM  
Thankyou Micheal and Glen - both good ideas
BUT......

Michael: The membership majority voted AGAINST buying it, so they won't want to vote the other board members off. They think it's a "waste of money" and "we can all get along" lol
Also, we are a 10 unit complex and the 2 other board members own 5 units between them (I own one and there are only 2 of us that are owner-residents). Even if the others didn't like their decision, it's impossible to vote them off.
I'm stuck

Glen: I did check the state laws and unfortunately there is no mention of required D&O Insurance. Anyway, the other board members ignore the state laws to have an independent audit of the books (there's never been one) and the law that requires a fidelity bond on board members. They don't care what law they ignore it seems.

We are under the pre 1982 Condominium Act and so are not even obligated to register with the Secretary of State and become a corporation. Besides which they don't do receivership's for HOA's in Texas.

A pretty bleak picture eh? I really must resign. But first I plan to get written confirmation that I motioned to fix safety repairs and abide by the bylaws. They will vote against it, as they already have unofficially, but then I will have proof that I tried when something terrible does eventually happen. Since they refuse to have a meeting, I will have to do this via email.

If you can think of any other safe guard I might take, please pass it along.

Thanks for the help!
JohnM3
(Florida)

Posts:288


03/31/2010 7:36 PM  
We had a Treas who built an upward extension on the perimeter wall while we were in the middle of a 27 million dollar lawsuit against a developer in Florida. he hired young folks lost his receipts an did it all without permits................Dumb yes the city was there 18 hours a day while the sinkhole was open 11 months. We voted him off the board called the cops they said sorry nu thin we can do. We turned it in to our dnr policy company. An they made a deal with him or they were going to take his house, his job, an put him under the jail case closed an what did it cost us zero.............thats why you cary dnr insurance some call it dno insurance
LoisW2
(California)

Posts:6


04/01/2010 4:44 PM  
I'm sure it varies state to state, but our Insurer, Farmers, failed us utterly on D&O. A recent amendment to our policy (read it carefully) said the insurer would not cover lawsuits that do not include demand for damages.
The guy suing us carefully crafted his suit to preclude damages and we are looking at $400,000 in attorney fees, completely uncovered.
We are a six unit assn. and we will go bankrupt, collectively and individually.
Run, do not walk, away from the board. If that is not an option, buy a policy yourself. For us, it was useless anyway but for this reason and many others I believe
CIDs and HOAs are untenable.
We cannot dissolve, we cannot go bankrupt (debts devolve to owners) and there is no way out if a plaintiff has some resources.
Gopd luck.
JohnM3
(Florida)

Posts:288


04/01/2010 4:58 PM  
You have the authority in Florida anyway to displive or go into bankruptcy. Why not file for damages?

JM
LoisW2
(California)

Posts:6


04/01/2010 5:09 PM  
we are in california.....law prohibits bankruptcy in that debts devolve to owners, so we go under together and alone...and law requires 100% support for dissolution.
MicheleD
(Kentucky)

Posts:4491


04/01/2010 6:18 PM  
I agree with the others here that I would not serve on any board that did not have D&O insurance, and that includes any community, volunteer,or HOA boards.

You should also ensure that your vote FOR obtaining insurance is in the minutes.
GlenL
(Ohio)

Posts:5127


04/02/2010 2:04 AM  
Posted By LoisW2 on 04/01/2010 5:09 PM
we are in california.....law prohibits bankruptcy in that debts devolve to owners, so we go under together and alone...and law requires 100% support for dissolution.



Lois, I’m not an attorney so this is a question for yours. I would see if you could file a lawsuit asking for damages and have it combined with the existing suit to drag the insurance company in.

"Common sense is like deodorant--the people who need it most never use it."
DanielH1
(California)

Posts:481


04/02/2010 1:44 PM  
In other threads, we have noted that some insurance companies allow you to buy a rider to your homeowner's policy that will cover big special assessments in certain cases, like a lawsuit. Such a rider might serve as a fallback position for an individual if your HOA is sued, lacks its own insurance and levies a big special assessment.
MichaelK11
(Texas)

Posts:432


04/02/2010 5:22 PM  
I asked my homeowners carrier about that. They have that, but it's only for special assessment to cover damage to HOA improved property (flood, fire, etc.) In other words, extends my homeowner coverage to my stake in similar property and claims of the HOA, if they lack property insurance.

But it doesn't cover the types of things my homeowner's policy doesn't cover -- liability, etc.

That's just the situation with my own carrier (USAA).
JohnM3
(Florida)

Posts:288


04/02/2010 8:53 PM  
Normal insurance does not cover it . It is a separate policy an I really don't care what your bylaws state you as a BOD member can be sued by damn near anyone. No matter what the developers lawyer put in the docs...an understand something thats who wrote your docs................you do what you want but stop acting like a social club this is a business an the BOD are the principles CFO, CEO an all have fiduciary responsibility's by your state laws....................its only about $500 a year every day you delay you put everyone on the board in jeopardy
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Forums > Homeowner Association > HOA Discussions > Indemnity vs D&O Liability Insurance



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