D&O liability insurance application form

Why HOAs and Condo Associations Need D&O Insurance

There’s no getting around the reality that community associations need D&O liability insurance coverage as an integral piece of its risk management program. Volunteer members of the Board of directors make numerous and significant decisions regarding association management.  Directors would not take on these volunteer responsibilities without protection from challenges to their decisions.  

Directors are charged to follow all applicable governmental laws, enforce the associations governing documents, protect the association’s assets, and collect fees and assessments. There’s a lot of room for things to go wrong for directors.  More importantly, whether it is right or wrong, decisions can be challenged, and directors can be sued.

An HOA is a legal entity, and the directors require guidance to operate. Documents include; articles of incorporation, CC&Rs, bylaws, and rules.  Also, these are all subject to applicable state and federal regulations. When a director is in court or facing a claim, he or she will be protected according to the indemnification provisions in the governing documents. 

That agreement to indemnify is funded in two ways: 

(1) a D&O insurance policy, or;

(2) The association’s assets: the assets are primarily the liquid assets of the association, and if not sufficient, a special assessment issued to the membership.

What is D&O liability insurance?

D&O or Director & Officer Liability insurance is critical. It protects the association assets when Directors and/or Officers, employees, committee members, and/or community association managers are challenged for their decisions or fail to meet their responsibilities. Sometimes they make a mistake or are accused of making one, and D&O insurance provides the protection they need and the association needs. 

D&O insurance not only covers the board members, but it also protects the association. What is not covered by the D&O insurance must be made up by the association assets or a special assessment.

Typical HOA claims that need coverage

The board of directors needs to be aware of what type of claims or exposures they may encounter. Unfortunately, some HOAs have liability insurance that does not cover their unique needs and leave themself open to massive exposure risks. In short, not all D&O liability insurance is created equal.  Good D&O insurance will cover the following common claims: 

  • Election disputes
  • Economic loss for wrongful eviction, defamation, or malicious prosecution.
  • Demand by a unit owner for the association to purchase flood or E.Q. insurance
  • Rule by the board to not allow a BBQ grill on a balcony
  • Discrimination claims, including emotional support animal claims
  • Demand for the board to increase the resources to monitor common areas to prevent slip and fall injuries.
  • Demand for the board to require that the calibration of a security gate be checked more frequently to avoid potential property damage.
  • A challenge to an architectural review committee decision

D&O coverage for HOAs and condo associations

There are two types of D&O liability insurance offered to HOAs or Condo Associations. The first is an endorsement or a coverage provision in a package policy.

In the 21st Century, these endorsements are substantially insufficient.  The second type of policy is a standalone D&O policy, mostly offered by a program specializing in providing products for community associations.  

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Tips for purchasing a D&O policy for an HOA or condo association

Always make sure to work with a qualified community association insurance professional.  This agent needs to have a deep understanding of both “insurance” and “the community association industry.”

Some critical questions to ask and considerations to keep in mind when shopping for condo association or HOA D&O insurance include:

  • Shop for the insurance specialist you will be working with, not the product. 
  • How many years has the insurance professional been involved with community associations?
  • Does the professional handle other associations? If so, how many and are any like yours? 
  • Seek references for the insurance specialist by contacting neighboring associations the professional handles. 
  • What does the insurance professional need to analyze the program? The insurance specialist should always ask for governing documents and to review your existing policies. 
  • How many management companies do they work with at this time?
  • Do they have any community association or relevant insurance designations?
  • Do they participate in any industry organizations such as the Community Association Institute?
  • What role will they play in the event of a loss?
  • The insurance specialist must present to your board. 
  • Ask what the community association insurance specialist will do once the program is put together, i.e., explain each policy’s requirements in the event of a loss and provide education.  

Ask what the community association insurance specialist will do once the program is put together, i.e., explain each policy’s requirements in the event of a loss and provide education. 

Need help finding D&O liability insurance?

McGowan Program Administrators (MPA) Community Associations Directors & Officers Program protects the individuals who voluntarily serve on association Boards of Directors as well as the association itself and all those who assist the Boards.

This includes employees, committee members, community association managers, and other volunteers assisting the Board’s direction. MPA’s products and services reduce risks and ensure state of the art protection.

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