HOA Directors & Officers Insurance: 3 Smart Questions for Board Members

This short video blog post on Directors and Officers Insurance (D&O) provides an introduction and 3 key questions to ask about any D&O insurance policy. For even more detail on D&O insurance see the longer Directors and Officers Insurance webinar video here, which includes a detailed discussion and Q&A session.

Hello Board Members, my name is Kevin Boland and welcome to my Novato, California insurance office.

Today’s topic is on Directors and Officers insurance (D&O). It’s a critical component in your overall insurance package and that’s because if you are sued by an angry homeowner, a tenant, a guest or a vendor, a D&O  policy will defend you. Now we all know that it’s rare to have an unhappy homeowner! Just the opposite right!

In addition to being an HOA insurance specialist, I also serve on my board, and trust me I’ve felt the pain of a homeowner knocking on my door at 11 o’clock on a work night asking me to get dressed and go chase a cat in the alleyway that never happened. You know, as board members, we have to make a lot of big and small decisions which impact our membership. The decision could be financial such as raising reserves, increasing monthly dues, or heaven forbid voting for the one-time special assessment. The decision could be physical such as replacing the roofs, the siding, the paint, the gutters, the landscaping, the fencing, or even changing the ladder alliance and despite our best efforts as dedicated volunteers, and unpaid, at some time we might be sued by an unhappy person.

But not to worry because a great D&O policy will spring into action to defend you, and notice I use the adjective ‘great.’ That’s because not all D&O policies are alike, a few are great, some are good, and some have big gaps in their coverage. At the end of my talk today I will share with you three questions that you can ask to make sure that you have a great D&O policy.

Two Real Life Examples

Let me share with you a real story that happened about two years ago and I can demonstrate to you how a good D&O policy will defend you. One of my associations in Northern California had a new homeowner attend the meetings, and they were being very disruptive, they were shouting down the board members, they were interrupting them, and they even brought a dead rat to the meeting to make the point the Board wasn’t doing enough to get rid of the rats.

So, the board did what the board had to do, they fined this person, and they precluded them from attending any future Board meetings. Guess what, this homeowner did. Well, it’s California so she sued, and unfortunately, they had an attorney who claimed the whole litany of allegations, such as discrimination based on age, race, ethnicity, a hearing problem that she claimed she had because that’s why she was shouting down the board members. The attorney also claimed that the Board committed an omission, and the omission is where the board didn’t do something they were supposed to do and the omission was, per the attorney, they didn’t eradicate every rogue rat in the association and we all know how hard that is to do.

The good news was my company, Farmer’s Insurance successfully defended the Board, and a year later we proved that the Board did everything pertaining to the CC&Rs, they did everything within their authority. However, it still costs my company about thirty thousand dollars in litigation fees, and here’s my point, some D&O policies will not cover discrimination lawsuits, so it’s really important to make sure you have that coverage in your policy! Okay?

Florida Condo Collapse 2021

Another good example right now, where a great D&O policy is defending Board Members in South Florida where we had the terrible 12-story condominium complex collapse. You better believe everybody is pointing fingers now at the Board Members, claiming that their it was their fault that the structural integrity of the towers wasn’t sufficient. But from what I’ve read, they have a great D&O policy which means the personal assets of the Board Members are being protected. Okay?

Directors and Officers Insurance – 3 Key Questions

So that’s it, I don’t want to take off too much of your time today but I do want to leave you with three of the most important questions to ask your insurance broker, so you know you have a great D&O policy to protect the association and your personal assets:

  1. Does our Directors and Officers insurance policy cover breach of contract lawsuits? A breach of contract lawsuit could occur where, for example, if you hire a painter to paint your buildings and they do such shoddy work you have to fire them. Well, they can turn around and they can sue you for breach of contract so you want to make sure you have that coverage in your policy in your D&O.
  2. Does our Directors and Officers insurance policy cover first and third-party discrimination lawsuits? I’ve come across a lot of D&O policies that either entirely exclude discrimination and very rarely do i find a policy that will actually include third party discrimination coverage. My company does, Farmer’s Insurance but I find a lot that don’t.  A first party discrimination lawsuit occurs when a board Member, like I described earlier, sues the association. They are first party because they’re part of the insurance. A third-party discrimination lawsuit is when somebody else sues the association or the board members such as a guest, a tenant, or a vendor, or even sadly your association manager (which we have a case of this year). So, you want to make sure you have first and third-party discrimination coverage in your D&O policy.
  3. Does our umbrella policy cover an excess on top of our Directors and Officers insurance exposure? Believe it or not some umbrella policies will not cover it. I was putting a bid together, a bit earlier this year in San Francisco, and they had a very smart board member. He listed all the coverages in a spreadsheet so he could compare. In the 11th hour he asked the independent broker, does your umbrella call the policy cover excess on top of the D&O exposure and the answer was no it didn’t. So, I picked up a new client because Farmer’s Insurance umbrella does cover the D&O exposure. This could be huge, by the way, because most D&O policies only have one million dollars in attorney coverage in the D&O and if your umbrella policy, which could be $5 or $50 million, doesn’t cover the D&O exposure then that money has got to come out of reserves or the operating account.

Okay, so that’s it for today. I want to thank everybody for listening and I’m putting together my insurance topics for next year. I was really happy and pleased to work with ECHO this year to offer you insurance topics. You know the leadership at ECHO has been fantastic as I’m sure you’re aware they’re putting together a lot of professional presentations for the benefit of us Board Members this year. So, if you have a topic you want me to talk about email me today, and if you would like a review of your association’s insurance shoot me an email today, and let me know what month you renew and I’ll be happy to follow up with you. I sincerely hope my insurance topics and tips help you down the road.