What Your Board Needs to Know About D&O Insurance

A homeowner association’s board of directors makes critical and sometimes difficult decisions. It’s their responsibility to make sure the association meets specific guidelines, stays compliant, and creates a safe place for members to live. Occasionally, homeowners may not agree on decisions or think that what the board decides is not in the best interest of the association or community. As a result, board members can be sued. Just like it is a best practice to have property and general liability insurance in place, a board should also purchase directors and officers (D&O) insurance.

What is D&O Insurance?

Directors and officers insurance is a liability policy that provides protection for claims against board members. In the event a board member is named in a lawsuit, they will have protection under the D&O policy for defense costs, settlement expenses, and any additional legal fees. Without D&O insurance, board members are responsible for any incurred costs, including settlement requests.

D&O Insurance Basics

There are many different scenarios where D&O insurance is beneficial to have in place. Here are a few common claim examples:

• Discrimination: A director or officer may be sued by a homeowner or another board member alleging they were mistreated due to race, color, age, sex, or other protected class.
• Breach of contract: Association members can file a lawsuit if they feel the board violated the by-laws or governing documents. This type of claim also includes inconsistently enforcing the rules.
• Harassment: If a homeowner feels that the board is being intrusive with their check-ins or requests to abide by established rules and regulations of the association, they may sue the board for harassment. Harassment lawsuits can also occur if board members get into a verbal argument with homeowners.
• Misuse of funds: The board has set procedures and guidelines for how to handle the association funds. If they fail to follow these or mislead members in what their money is being used for, a lawsuit may occur.
• Negligence of duties: If a board member fails to act in the best interest of association members, they are neglecting their fiduciary duty. For instance, if they decide to hire another board member instead of requesting proposals from third-parties better qualified for the project.

D&O Insurance Costs

D&O insurance costs vary depending on the insurance carrier, the associations claim history, and policies and procedures in place. It is best to contact an independent insurance agent for multiple quotes to review so the board can make an informed decision.

For additional help with insurance-related questions for your HOA board or other management responsibilities, contact AR Management Company today.