In the wake of a tragedy of the size and scope of this summer's building collapse in Surfside, Florida, many board members 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 themselves 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 decisions they make that may negatively affect the community comes from Directors & Officers insurance, more commonly known as ‘D&O.’ Jeremy A. Cohen, a partner 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 corporations 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 behalf of the corporation. This typically includes claims for breach of fiduciary duty and improper governance with respect to corporate affairs, as well as claims by individuals, such as defamation, libel, slander, and invasion of privacy.”
Dennis H. Greenstein, another attorney 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 proper notice of a claim as required by the policy—and not just claims that have risen to the level of actual litigation, but including ‘threatened claims’ as well. It’s therefore best practice to give notice to your carrier upon any threatened claim.”
Mark Hakim, an attorney with the New York-based firm Schwartz Sladkus Reich Greenberg Atlas, points out that “D&O insurance also does not cover personal injury suits, which would be covered separately—by the building’s general liability policy. No board member wishes to jeopardize his or her personal assets while being an unpaid volunteer. D&O insurance is intended to provide protection to the various board members acting in good faith in furtherance of their duties as directors. Generally, so long as the insurance is maintained without interruption, coverage continues to those board members, even following their departure from the board. Obviously, this coverage would only protect them from their actions while they were board members—not before or after.”