Page 10 - CooperatorNews Chicagoland EXPO 2021

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