Homeowners association and condominium association boards are often subject to litigation, and the people who volunteer on those boards may be named personally. Although many board members assume they are covered because they have D&O insurance in place, they don’t always understand how policy structure impacts coverage, exclusions, limits, and claims outcomes. One key difference lies in stand-alone coverage versus coverage obtained through an endorsement.

What Does D&O Insurance Cover?

Directors and officers (D&O) insurance provides coverage for lawsuits against COA or HOA board members for their decisions in running the non-profit corporation.

The most common D&O claims involve non-monetary lawsuits.  An example is a lawsuit against the Architectural Review Committee (ARC), board, and association.  Other types of lawsuits that can come against the board, association, manager, and management company include discrimination claims, breach of contract claims from vendors, failure to procure insurance allegations, and lawsuits to stop amendments, assessment increases, and elections.

Here are three examples:  

• A homeowners association board hires a landscaping company to maintain shared property, and because it’s expensive, the association raises monthly fees. It’s later revealed that one of the board members is the aunt of the owner of the landscaping company. The board member is sued for self-dealing.
• A condominium experiences a fire that destroys part of the roof. It is then discovered that the condo did not have sufficient property insurance in place. The board members are sued for failing to maintain sufficient coverage and failing to follow the bylaws, which require sufficient insurance.
• A homeowners' association fails to enforce some of its rules. When a homeowner tries unsuccessfully to sell their house, they file a lawsuit, claiming that lax enforcement has eroded the value of their property.

D&O insurance can provide protection against claims like these, but it needs to be structured correctly with the appropriate terms and limits. Otherwise, coverage gaps could leave the association or its board members paying legal bills out of pocket!

Stand-Alone vs. Endorsement Coverage

D&O insurance coverage can be purchased either as a stand-alone policy or as an endorsement added to another policy or commercial insurance package. While the endorsement option may seem easier and less expensive, it usually does not provide the same level of coverage. Endorsed policies are very inexpensive for a reason, and that reason is Exclusions of Coverage. For this reason, we recommend using a stand-alone D&O policy.

Below are some key differences that can arise with endorsed D&O coverage:

• Shared Policy Limits: If D&O has been added to a commercial package, the aggregate (total) limits of the policy may be shared between the liability, and D&O coverage. If a liability claim exhausts the policy limit, you may not have the coverage you need when a D&O claim emerges.
• Definition of the Insured:  A standalone D&O policy can offer robust coverage for current and former board members, committee members, volunteers, and spouses spanning a wide range of claims types, such as enforcement actions, owner disputes, and elections. On the other hand, endorsed coverage may be far more restrictive, resulting in no available coverage for certain types of claims or for former board members.
• Other Exclusions: An endorsed policy may have built-in exclusions that limit your protections in certain situations. Common exclusions on endorsed policies include discrimination, non-monetary lawsuits, breach of contract, and failure to procure insurance.

Do You Know What’s in Your D&O Policy?

When you serve on the board of a homeowners' or condominium association, you are taking on significant personal risk. You can reduce your exposure by performing diligently, setting aside self-interests, putting the association’s interests first, following the covenants and bylaws carefully, and avoiding any actions that could be seen as a conflict of interest.

However, lawsuits may happen even when you do everything by the book. It only takes one allegation of wrongdoing, and defense costs can be expensive. This is why it’s also important to make sure you have sufficient D&O coverage.

Unfortunately, many board members only ask their association whether there is D&O coverage. They don’t ask for details about the coverage terms or how the policy is structured. The Insurance Dec pages giveth, the Policy taketh away!  As a result, they may not realize their coverage is insufficient until they’re facing a lawsuit.

If you’re volunteering as a board member, be sure to look into the details of your D&O coverage. Find out if you have a standalone policy or just an endorsement, and read the policy language carefully.

If you have any questions or if you would like a second opinion on your D&O protection, reach out to Andrew Bateman for guidance.

Stand-Alone vs. Endorsed D&O Coverage: Crucial Information for Board Members

If you are volunteering on your condominium or HOA Board, and you are named in a lawsuit, will your association's Directors and Officers (D&O) Insurance coverage protect you?