Directors and Officers Insurance: Protecting the Volunteers Who Run Your Association

Part of the Insurance Warehouse Coverage Explained series: what each piece of an association’s insurance program does, in plain English.

Every association is run by volunteers. They approve budgets, enforce rules, choose contractors, deny or approve architectural requests and sometimes make unpopular calls. Directors and Officers coverage, usually called D&O, protects those volunteers and the association itself when someone claims a decision was wrong. Most bylaws promise to indemnify board members. Without D&O, that promise is paid out of the operating account and the reserves.

What D&O covers

• Breach of duty claims. Lawsuits alleging the board failed to enforce the bylaws, mismanaged funds or treated an owner unfairly.
• Non-physical claims. Discrimination and harassment allegations that arise from a board decision, including fair housing complaints.
• Disputes over elections, meetings, assessments and architectural approvals. The everyday business of an association, and where most claims start.
• Defense costs. On a good policy these sit outside the limit, so lawyers’ fees do not use up the money meant for a settlement.
• Prior acts and the property manager. Decisions made before the policy started stay covered, and the management company is protected when it acts on the board’s instructions.

Claims-made: why the policy can never lapse

D&O is written on a claims-made basis. The policy in force on the day the claim is made is the one that responds, not the policy that was in force when the decision was made. A board that lets D&O lapse for even a few weeks, or moves carriers without full prior acts, leaves every past decision uninsured. That is why we treat continuity as the first check at every renewal.

How the limit and the terms are set

• $1,000,000 is the usual starting limit for an association, with defense costs outside that limit. Larger communities and those with a history of disputes carry more.
• Lenders and managers expect it. Mortgage lenders reviewing your community look for D&O, and most property management companies require it before they will take on the association.
• A modest deductible per claim keeps the premium reasonable. Because most D&O claims begin with a demand letter rather than a lawsuit, early reporting to the carrier matters more than the deductible.

Where boards get surprised

• One board member suing another. Some policies exclude claims between insureds. Ask for that exclusion to be removed or narrowed.
• Non-monetary demands. An owner who asks a court to reverse a decision, rather than for money, is still a claim that needs defending. Not every policy covers it.
• The wrong line of coverage. Someone hurt on the property is General Liability. Money stolen by a treasurer is Crime and Fidelity. Storm damage is the property section. D&O is for decisions.

Before your next renewal, check that

Tap or click a box to tick it off as you walk. The boxes reset when the page is reloaded, so print the PDF at the end if you want a record.

• Defense costs are outside the limit.
• The policy includes full prior acts and names the property management company.
• Non-monetary claims, like a demand to reverse a decision, are covered.
• Committee members and volunteers are included in the definition of insured.
• Claims brought by one board member against another are not excluded.

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