D & O Cover for Associations Presents Challenges

In the Community Association world, Directors and Officers Liability Insurance is a must.

Community Associations, such as Condominium Associations, Homeowners Associations, and Co-ops, present a unique set of challenges to insurance brokers. Education is a key component to understanding these challenges and it is the insurance broker’s job to educate and explain the types of risks the associations face and how an Association can best protect itself from loss.

The best way to communicate the need for coverage is to give real life examples of a wide variety of claims Community Associations have encountered and the amount each claim costs. The lack of funds at many Associations is raising the number of breach of contract claims and has put the Associations in a position where they cannot afford to provide the same services they offered in the past.

Directors and Officers Liability claims across the board have increased in the past several years. Common claims which Community Associations are facing are Breach of Fiduciary Duty, Breach of Contract, Violation of Covenants, Conditions, and Restrictions, and Discrimination. As you can see, it is a wide range of claim situations and having coverage that will protect and prepare an association for multiple scenarios is very important.

Here are some examples of Directors and Officers Liability Insurance claims you can share with Community Association Property Managers and Board Members as you help them understand the importance of Directors and Officers Liability. Breach of Contract: Plaintiff seeking $150,000 for fulfillment of contract Defense Costs: $15k An Association hires a company to maintain the grounds for a three year term. After the first year of the contract, the board is not happy with the foliage selection and fires the grounds company. Grounds company files suit against the Association for fulfillment of contract.

Violation of Covenants, Conditions & Restrictions:

The Association By-Laws have several restrictions regarding the color schemes of homes. An owner is building a home and wants to paint it brown. The Association approves. The owner subsequently decides to paint the house pink and they don’t notify the Association. The Association notifies the owner that the color was not approved and the owners sue for arbitrary, discriminatory treatment since they believe that other homes in the neighborhood are not on the approved color list, also.

Discrimination: $100,000 Settlement-$ 140,000 in Defense Costs A complaint was filed by a prospective buyer against a Condo Association with the Department of Housing and Urban Development (“HUD”) alleging that the prospective buyers’ application to purchase a unit within the Association was denied for discriminatory reasons. Specifically, the buyer alleged the Association President discriminated against him by denying his application based on his age, national origin, and familial status. The HUD commission issued a finding of probable cause. During that time, the Board allowed the prospective buyer to purchase the exact unit they had initially sought. Despite this, the buyer filed a lawsuit against the Association alleging discrimination and included damages representing the difference of the unit purchase price during the time of the disputed application approval process, attorney fees, compensatory and punitive damages.

Another extremely important point to bring to the attention of Board Members and Property Managers at Community Associations is for them to be aware of what is excluded in their current Directors and Officers Liability policy. Many policies currently available exclude breach of contract, discrimination, employment issues and architectural issues, so the old saying BUYER BEWARE! is very important when considering a Directors and Officers Liability policy and what is NOT covered in the policy.