Are You Covered? D & O Insurance Explained

Insurance can be one of the most important and most expensive responsibilities facing an association board. It is also one of the least understood.

Directors and Officers (D&O) liability insurance pays for the financial consequences of certain wrongful acts committed by a board. Make sure that the policy includes any and all past and present directors and officers of the association. Coverage may be extended to include employees and other volunteers, such as committee members. Limits to D&O coverage typically exclude bodily injury and property damage (which should be covered in the General Liability policy), intentional acts of dishonesty, and situations where the insured may have gained personal profit for which he or she was not legally entitled. Some policies also exclude sexual harassment, discrimination, and wrongful discharge suits.

Most importantly, D&O coverage pays for the defense (i.e., attorney fees and court costs) of a claim of wrongful acts on the part of the insured. Purchase your policy from a reputable company that has a history of working with community associations. This is important because when you submit a claim under the policy, the claim adjuster and attorney assigned to your case will be properly experienced in protecting your interests and the interests of your association. Also look for an insurance company with an A.M. Best rating of at least an “A”. A.M. Best is one of several private organizations that rates property and liability insurers. Be careful if switching carriers. A new carrier could deny a claim due to prior knowledge of a claim by a board member at the time the application was signed. Or, if your agent switches you from a claims-made policy (covers claims for alleged wrongful acts when a claim is made and reported during the policy period) to an occurance policy (covers claims for alleged wrongful acts which occurred during the pollicy period), there could be a gap in coverage.

The D&O Test
Is your policy as broad as it should be? If your policy does not offer the items listed below, look for a program that does.

• Insures past and present directors, officers, committee members, volunteers, trustees and employees

• Insures the association named in the definition of insured

• Does not exclude prior acts

• Insures the builder/developer while serving on the board

• Defends non-monetary damages

• Does not exclude sexual harassment, discrimination, wrongful discharge, libel, slander, defamation of character, publishers’ liability and/or copyright infringement

• Provides a duty to defend

It is dangerous to assume that an elementary property and liability policy will cover you as well as it should.

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