Why Directors and Officers (D&O) Insurance Is A Must For Homeowner Associations

do-insurance

Did you know that volunteering as a board member for your condo or HOA could jeopardize your personal financial security? You’re actually at risk from lawsuits against the board—whether they have merit or not. Having an indemnification clause in your bylaws helps protect directors financially but at a greater potential cost to the condo association than a comprehensive Directors and Officers (D&O) liability insurance policy.

It may not seem fair that being a volunteer director of your condo or HOA board comes with the potential for financial ruin. But it’s a very real risk—there are many cases where directors have been found personally liable for board decisions and required to pay expensive legal costs as a result.

One example from Ottawa, Ontario is the case Boily vs. Carleton Condominium Corporation 145, where a number of unit owners sued the board over repairs to a parking garage that resulted in “substantial changes” being made to the courtyard area. The Ontario Superior Court of Justice awarded in favour of the owners (a decision later upheld by the Ontario Court of Appeal); the directors were found in contempt of court and personally liable for more than $95,000 in legal costs.

Being a director is a somewhat thankless job that comes with big responsibilities. You have a legal duty to protect owners and their investment in the property. And if the board is not covered by the right liability insurance, you are at risk if the board is sued. No matter how frivolous a lawsuit might be, you are required by law to hire an attorney (with your own money) to defend your actions as a director.

Typical lawsuits that plague condo and HOA boards include:

  • Wrongful termination of an employee
  • Discrimination due to race, religion, sex, or disability
  • Defamation of character (i.e. libel or slander)
  • Breach of contract by a third-party vendor
  • Renovations by the building or homeowner
  • Noise by another homeowner, a contractor, or the building’s machinery
  • Subletting guidelines and restrictions
  • Pet guidelines and restrictions

While an indemnification clause in the bylaws will require the condo association to reimburse directors for uninsured legal fees incurred in their capacity as board members, it can become expensive if the board is sued.

On the other hand, a comprehensive D&O liability insurance policy can be a budget line item that pays for itself in the event of a lawsuit.

“Comprehensive” means that the policy stands on its own—it’s not D&O liability coverage that’s embedded into the property’s commercial insurance or general liability policy. This is important because a comprehensive policy provides coverage for elected or appointed directors, trustees, officers, employees, committee members, and volunteers now or in the past. But the embedded policy usually just covers the directors and officers in office during the policy period.

To protect yourself as a board member, make sure to consult the association’s insurance broker to see if the liability coverage can withstand a legal assault.

Do you have any experience with lawsuits as a condo/HOA owner or board member? Share your story in the comments below!

Evercondo the leading web and mobile platform that facilitates quick, useful communication between property managers, the condo association or HOA board, and residents. Contact us for a demonstration or a free trial to see how we can keep your communities happy.