By: Ronald J. Barba
Personal liability for board members is always a concern. The CIOA requires associations to purchase property insurance, flood insurance (when applicable), commercial general liability insurance and fidelity insurance, but it is silent on the issue of Directors’ & Officers’ coverage. Even the Non-Stock Corporation Act does not mandate the coverage. Frankly, it’s one of the main reasons unit owners shy away from taking a spot on boards. Most associations have some kind of Directors and Officers (D&O) insurance coverage provided for in the declaration, but an alarming number of them rarely spend any time thinking about what the policy covers and what it excludes. All too often D&O coverage will be purchased as an add-on to the Association’s general liability policy.
A D&O insurance policy covers most of actions taken by the Board in the exercise of its obligations. I say “most” because some policies exclude violations of law. Directors’ and Officers’ liability policies vary greatly with regard to the individuals covered, the claims covered, and the amount of coverage available. Generally, separate stand-alone policies provide superior directors’ and officers’ coverage as compared to coverage provided as part of the Association’s package master policies.
Claims brought against boards for violations of fair housing laws, employment and other laws should be covered by the D&O policy. Be sure to check with your agent and get a statement from him/her confirming such coverage if you are not sure. You don’t want to discover that the “inexpensive policy” you purchased excludes areas you thought were covered. A mistake made by some boards and their managers is purchasing the cheapest D&O policy from the same carrier the Association purchases its master packages from. Provided the board is covered as described above, there’s not too much to worry about. Any claim made against the board as a whole or against any individual board member will be referred to the D & O carrier for coverage including the cost of defense of the claim(s).
In the worst-case scenario, there may not be a policy in place or coverage for a claimed act. One way to ensure that the Association is obligated to purchase sufficient D&O coverage is to review the Association’s certificate of incorporation. Indemnification provisions should be inserted into the certificate of incorporation if they do not already exist. The Connecticut Non-Stock Corporation Act (to which the Association is subject) provides that boards may indemnify its members for actions brought against them in their capacity as board members. Even if it means that the community is specially assessed to indemnify the board member, the board member is protected.
As another line of defense, each board member may wish to contact their own homeowner’s carrier to see if claims brought against them might be covered. It’s a long shot, but sometimes the scope of coverage is surprisingly broad.
Serving on an association board can often be grueling and thankless. Board members deserve the peace of mind that accompanies the broadest protections of insurance coverage.