It is likely that your board has adequately prepared your homeowners association for fires, flood, severe weather, or other similar emergencies by obtaining proper insurance coverage. However, many associations overlook an important facet of insurance called D&O Insurance, or Directors and Officers Insurance. Here is everything your board needs to know about D&O insurance so that you and your fellow board members can be protected.
What is D&O Insurance?
Directors and Officers insurance is a type of policy that is in place to protect the officers and trustees on your board from liability in the case of an accusation from a homeowner. It is very difficult to please everyone, and when a homeowner becomes upset, individuals as well as the board may be at risk.
Why is D&O Insurance Important?
If an the name of an individual on your board is dragged into a legal battle between the HOA and a homeowner, that individual can find themselves responsible for legal fees, or even a large settlement. Many HOAs obtain insurance for the association as a whole while forgetting to insure individual board members, leaving them exposed to personal liability and large fees.
What Does D&O Insurance Cover?
D&O insurance typically covers everyone who is currently on the board, without covering anyone who is no longer serving as part of the board. Coverage typically includes fees associated with legal defense, and in most cases will cover the settlement amount in the event of a judgement.
Most policies will not cover the board member in the case of willful negligence of fiduciary duty, or intentional breach of laws or of the governing documents. The policies also typically do not cover fraud, and will not cover any lawsuits that existed before the D&O policy was purchased.
Knowing Your Insurance Coverage
Some insurance policies come with a D&O policy attached. However, just because your HOA is adequately covered does not mean individual board members are likewise covered. It is important to look closely at your current coverage plan to find out if D&O is included as part of the package. If not, the policy will need to be purchased separately. Be sure to do thorough research before choosing a plan to make sure that it will protect your board members when the time comes.
Although it may seem difficult to add another policy premium to your yearly budget, the cost of not having D&O insurance is much higher. The plans are usually flexible, allowing your HOA to purchase the amount of coverage that you need for the size of your HOA.
If your HOA has overlooked D&O insurance in the past, now is the time to start researching and find a plan that works for you. Protecting board members from incurring expensive fees and fines will benefit everyone on the board as well as the whole community.