Who has Directors and Officers ( D&O) Insurance

Started by JohnA • 11 replies • 4051 views

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JohnA (Texas)
Posts: 6

Posted:

We are small. 25 town-homes in TEXAS. We have 3 directors and 5 officers; 1 Pres, 2 VPs, 1 Treas and 1 Sec. Our properties are 30 years old. Cost approx 65k in 1972 as new, now worth approx 275k to 325k depending on size etc.. Our dues are $900 paid twice per year. Our taxes are approx $5k/year.
We are experiencing more and more issues where homeowners want to remodel and expand their properties or make changes that are not in keeping with the architecture. Our process is to submit plans to the architectural Control Committee. Most of the time they are denied. The ACC has not historically done a good job of explaining why the requested changes were denied - so I am working on that. Now we hear more and more comments that we could be sued since the ACC appears to not be consistent with policy. Since our property values have gone up so much (in a "hot" area) we have more new owners in the 6 figure income, single and high powered positions in their company or owners of their own companies. I sense they don't like being told NO.
I have been asked to get D&O Insurance to cover us if sued. Rates are from 1500 to 2500/year. Does anyone else have this? If so have you used it? How much are your rates? Any do's and don'ts when picking a company?

RogerB (Colorado)
Posts: 5,067

Posted:

JohnA, regarding broad D&O (Professional Liability)insurance I suggest you contact a State Farm, and others who specializes in association insurance. Watch out for exclusions. Cover current and past directors, committee members, manager, and association. After getting bids, I suggest you try to get the selected Agent to come talk to your Board to present and answer questions. Then let the Board make their decision.

Decisions made by an ACC can be very subjective and different ACC members have different tastes. Therefore, standards for your ACC need to be established to provide more consistency. These standard should be provided to all Owners to guide them in their requests to remodel and expand their properties. If their request is denied then good reason(s) should be stated on the request form and the owner advised of their right to appeal this decision by requesting a hearing befor the Board. No owner likes being told NO.

I'm not familiar with D&O Insurance rates in your area but insurance rates have been soaring the past few years. There can be a wide range in cost. For example, the last two HOAs for which DARCO took over management, I was able to improved their insurance coverage while reducing their premiums 56% and 74%.

Roger

LisaS (Illinois)
Posts: 341

Posted:

We have a 5 member Board representing 300 homes in Illinois. Because I was aware of the liability for us, I made sure we had D&O.
Our comunity consists of many professionals with high incomes who also do not like the answer 'no' ;-)

We have high limits individually and as a group. Ours also covers theft.

We pay only $300/yr through Cincinnati Insurance. We used insurance broker Esser Hayes for our community policy and D&O.

KarenK (Georgia)
Posts: 1

Posted:

Our association has D & O coverage through AutoOwners Insurance Co. There is a company named Ian Graham in California that specializes in this coverage. Their web-site is interesting and gives good information about the need for the coverage. I would not be a board member without the coverage. Just not worth the risk!

See www.ihginsurance.com for some good information.

HollyR (South Carolina)
Posts: 3

Posted:

Hi John, We are an HOA in Myrtle Beach, SC and have 206 homes in our community. We pay D & O insurance which costs $1700/year. It's better to have it and not have to worry about being sued by someone who doesn't like what the board does. We are a new board trying to get a handle on the problems of the community, and I'm sure there will be people in the community who will not like it when we begin enforcing the rules which have been in place but have not been enforced. I made a few calls, found out what was covered and went with the company we felt offered the most coverage for the money. We also interviewed several attorneys who deal with HOAs on a regular basis before deciding who to hire. It's important to have someone who specializes in HOAs.

DCWilliams (Wyoming)
Posts: 6

Posted:

Please read all of the following and then comment on the need, or lack thereof, for our BOD to purchase D & O insurance.

Our HOA is incorporated according to the requirements of the Wyoming Nonprofit Corporation Act. Our Covenants, signed by each homeowner, provides the following:
"It is expressly understood and agreed by and between the parties hereto, anything herein to the contrary notwithstanding, that each and all of the representations, covenants, undertakings and agreements herein made on the part of the Board of Directors are nevertheless each and every one of them, made and intended not as personal representations, covenants, undertakings and agreements by the Board of Directors not in its own right, but solely in the exercise of the powers conferred upon it as such Board of Directors and that NO PERSONAL LIABILITY OR PERSONAL RESPONSIBILITY ASSUMED BY NOR SHALL AT ANY TIME BE ASSERTED OR ENFORCED AGAINST THE BOARD OF DIRECTORS ON ACCOUNT OF THIS INSTRUMENT (OR ON ACCOUNT OF ANY REPRESENTATION, COVENANT, UNDERTAKING, OR AGREEMENT OF THE SAID BOARD OF DIRECTORS IN THIS INSTRUMENT CONTAINED, EITHER EXPRESS OR IMPLIED,) ALL SUCH PERSONAL LIABILITY, IF ANY, BEING EXPRESSLY WAIVED AND RELEASED."

In addition, the Wyoming Nonprofit Corporation Act provides the following in Paragraph 17-19-830 (b):
"Members of a board of any nonprofit corporation organized under this act are not individually liable for any actions, inactions or ommissions by the nonprofit corporation. This subsection does not affect individual liability for intentional torts or illegal acts."

RogerB (Colorado)
Posts: 5,067

Posted:

DC, yes you should have D&O insurance as well as your "corporate shield". Besides D&O, usually liability and fidelity insurance are needed. We live in a litigious society and HOA insurance is needed for the association, board members, committee members, and managing agent. Also, there are specific selections within the D&O insurance which are highly desirable.

RogerB.

DCWilliams (Wyoming)
Posts: 6

Posted:

Roger, you mention that there are certain selections within D & O insurance policies that are highly desirable. Please describe them.

RogerB (Colorado)
Posts: 5,067

Posted:

Please check with your insurance agent as I am not an expert in this area. In the 1980s Association Professional Liability came into being to replace the Standard D&O Liability coverage. In addition to the board members it covers the association as an entity which is important as it may relate to your "corporate shield". Make sure there is coverage for, directors, former directors, employees, volunteers, committee members and other persons acting at the directions and on behalf of the Association.

Here are a few things on my check list (not prioritized).
* Some policies cover only intentional acts, all acts including negligent acts need to be covered.
* Coverage for equitable relief (no money damages) as well as for money damages is needed. Review coverage to identify and correct for deficiencies and gaps.
* Does coverage cover expenses up-front? Or do Officers and others have to pay their own expenses and get reimbursed later? If so, do the HOA documents provide for up-front advances to them for all required expenses?
* Umbrella policies do not usually fit over D&O policies, check to see.
* Most D&O policies do NOT cover claims for punitive damages, slander, libel, deformation, nor pollution. Directors have a fiduciary responsibility and should always act prudently, in good faith, and in the best interest of the HOA and use “good business judgment”. NO coverage for fraud, intentionally acting wrongfully or ratify acts known to be wrong.

Insurance is critical in our litigious society. Shop around, get educated, then get a good company with adequate coverage for the best price. We have often reduced new clients insurance costs over 50% while getting better coverage with a better company!!

RogerB

ChuckP (Louisiana)
Posts: 1

Posted:

As with many questions I've seen in this forum, a talk with a lawyer is essential. Different states, and even some different cities, have differing laws about liability. Then, there's the matter of what your charter/covenant, etc. says.

I'm just playing devil's advocate here since most of the replies advised getting the D&O insurance. Thanks to this thread I am bringing this matter up at our next board meeting. Our former attorney had advised me that as non-compensated volunteers we had nothing to worry about. I think we need to consult our current attorney and then make sure all board members are comfortable with their legal position.

RogerB (Colorado)
Posts: 5,067

Posted:

Chuck, I've experienced that anyone can sue for any reason. Rerespective of what your association docs state it is expensive to defend yourself in court and you can lose the case and lots of money. An attorney who says you have nothing to worry about should be a "FORMER attorney"

RogerB

EdR (Texas)
Posts: 170

Posted:

Chuck:
I believe volunteer or not, that since D&O covers the directors and officers if THEY make a mistake in the course of their duties as directors and officers that they end up getting sued for, it is likely to be a good thing to have. Unfortunately, though, our insurance company have fought tooth and nail to not ever cover the D&Os (the matter had to be proven in court with a summary judgment that it was their mistake), even though the board has the coverage. And, then, the other problem is that if an association member or other director sues and there is a settlement, the monies for settlement might go right into the treasury instead of to the wronged person or group. These are questions that should be asked of and answered by an attorney and an insurance agent as to what is or is not covered, if a settlement who recovers the monies.

This is just my opinion, Chuck, but I believe the D&O insurance gives unscrupulous directors a sense of security that they can do anything they want and not be personally accountable because if there is a suit, they are covered. At the same time, smart people who study the insurance policy or know there is not one, will not run for a board or want to be on a board that doesn't have the D&O coverage. You might want to checkout www.ahrc. com for information regarding pros and cons of the insurance situations. I have no connection to that website, so this is not an advertisement, but it is how I found hoatalk--it is mostly articles.
Good luck,
EdR

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