Page 10 - CooperatorNews Chicagoland EXPO 2021
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10 COOPERATORNEWS CHICAGOLAND  —EXPO 2021  CHICAGO.COOPERATORNEWS.COM  INSURANCE  In the wake of a tragedy of the size and   scope of this summer's building collapse   in Surfside, Florida, many board mem-  bers in condos, co-ops, and HOAs have   concerns  about  what  liability  they  may   assume in their administrative role. This   concern is legitimate. Board service is a   volunteer position—those who choose to   serve do so for free, donating their time   and  effort  to  their  community. The last   thing a volunteer wants is to find them-  selves being sued as a result of a decision   they made in good faith. So what stands   between boards and backlash? Insurance,   for one—and solid governing documents.   Directors & Officers Insurance  The main protection for volunteer   board members against liability for deci-  sions they make that may negatively affect   the community comes from Directors &   Officers insurance, more commonly   known as ‘D&O.’ Jeremy A. Cohen, a part-  ner at the law firm Seyfarth Shaw, which   has offices in New York, Chicago, Boston,   and other cities in the U.S. and globally,   defines D&O insurance and its coverage:  “Directors & Officers insurance is the   coverage typically purchased by corpora-  tions to cover all manner of claims against   its directors and officers,” he says, “subject   to provisions and exclusions set forth in   the specific language of the policy. D&O   insurance generally covers claims against   corporate directors and officers arising   out of their performance of duties on be-  half of the corporation.  This typically in-  cludes claims for breach of fiduciary duty   and improper governance with respect to   corporate affairs, as well as claims by in-  dividuals, such as defamation, libel, slan-  der, and invasion of privacy.”   Dennis H. Greenstein, another at-  torney with Seyfarth Shaw, adds, “While   there are numerous standard provisions   and coverages in the typical D&O policy,   each policy is unique. Board members and   managing agents must consider what the   particular policy provides, and what acts   are specifically included and excluded. It   is critical that every board understands   what is being covered and excluded, the   amount of the deductibles to be paid by   the insured on each claim, and the notice   requirements that must be given to the   insurer of any possible and actual claims.   Insurance companies frequently initially   deny coverage if the insured failed to give  most decisions made by a corporation’s  cally asserted against individual directors.   proper notice of a claim as required by  board are protected by what is known as  Personal injury claims—such as slip-and-  the policy—and not just claims that have  the ‘business judgment rule,’ which, in es-  risen to the level of actual litigation, but  sence, holds that courts will not interfere  example—are not covered by D&O in-  including ‘threatened claims’ as well. It’s  with or second guess a board’s actions (or  surance, but would likely be covered by   therefore best  practice  to give notice  to  inactions), provided there is no evidence  general liability insurance.  Specific poli-  your carrier upon any threatened claim.”  Mark Hakim, an attorney with the  bad faith on the part of the board, and that  claims that are not covered. Claims by the   New York-based firm Schwartz Sladkus  the decision was made “for the purposes  corporation against a director or officer   Reich Greenberg Atlas, points out that  of the cooperative, within the scope of its  are often excluded, as well as claims by   “D&O insurance also does not cover per-  sonal injury suits, which would be cov-  ered separately—by the building’s general  authority to a board, or to give a negligent  under the scenario where member/share-  liability policy. No board member wishes  or incompetent board the proverbial ‘get-  to jeopardize his or her personal assets  out-of-jail-free card’; it just means that  Cohen. “Board member duties are de-  while being an unpaid volunteer. D&O  their decisions will generally be upheld,  termined  by the  governing documents   insurance is intended to provide protec-  tion to the various board members act-  ing in good faith in furtherance of their  tected under D&O insurance. Like busi-  duties as directors. Generally, so long as  ness judgment, “D&O coverage generally  approve those expenditures, the board   the insurance is maintained without in-  terruption, coverage continues to those  or reckless conduct,” says Cohen. “It also  eral rule, however, and could be overrid-  board members, even following their de-  parture from the board. Obviously, this  and officers outside the scope of their of-  coverage would only protect them from  fices.  their actions while they were board mem-  bers—not before or after.”  The Business Judgment Rule  In the United States, explains Hakim,  age, because contract claims are not typi-  of discrimination, self-dealing, and/or  cies will have specific exclusions of other   authority, and in good faith.” This stan-  dard is not intended to grant unchecked   as long as the foregoing standard is met.  That said, not all decisions are pro-  does not apply to intentional, fraudulent,  members will not be liable. This is a gen-  does not apply to acts taken by directors  den by laws or statutes that require cer-  “In addition,” he says, “contract claims  applicable laws.  As for decisions made by   (e.g., breach of a proprietary lease) typi-  cally would not be subject to D&O cover-  falls on the condo or co-op property, for   one officer or director against another.”  Board  members are likely not  liable   holder approval is required, points out   of the condo or co-op, so if unit owners   or shareholders have approval rights for   particular expenditures and decline to   tain repairs or remediation. The board   may be responsible for compliance with   the board itself, the board will be subject   Protecting Board Members from Claims  A Look at Liability & Insurance Coverage   BY A. J. SIDRANSKY  continued on page 30 

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