D&O Insurance

If you are a volunteer member of your association’s board of directors, it is in your best interests to ensure your association maintains a comprehensive directors and officers (“D&O”) liability policy.  A claim against board members may or may not be justified, but defense may be an expensive undertaking and in some instances awards for damages may be substantial.

Colorado law address indemnification of directors and officers.  Association bylaws sometimes also address indemnifying committee members or other volunteers.  However, without D&O liability insurance to fund the indemnification obligation, an association is faced with the prospect of funding defense as an association common expense of the association.

What are the most common types of D&O claims?

  • breach of fiduciary duty;
  • failure to adhere to bylaws;
  • challenges to assessments;
  • failure to properly notice elections or count votes;
  • improper removal of board members;
  • challenges to architectural review decisions;
  • Fair Housing Act discrimination claims;
  • challenges regarding easements and variances;
  • board’s failure to maintain common areas;
  • defamation by the board of an associations member; and
  • failure to properly disburse funds.

This list represents the most common claims, but there are many other types of claims an association may face.

Types of D&O Insurance Policies.
All directors and officers policies are not created equal.  In general, there are two types of policies: package policies and stand-alone policies.

  • Package policies often limit coverage to monetary claims and may only cover lawsuits, but not administrative proceedings (i.e., fair housing claims before state civil rights division) or alternative dispute resolution proceedings (i.e., mediation or arbitration).  Additionally, insured persons may be only directors, officers and the association.  The policy may not cover committee members or the association’s manager.
  • Stand-alone policies typically cover monetary and non-monetary claims and also cover administrative proceedings and alternative dispute resolution claims as well as lawsuits.  Further, insured entities typically include not only the directors, officers and association, but also employees, committee members, volunteers and community association managers.

Even stand-alone policies are not created equal.  Types of coverage the board may consider when reviewing D&O policies include the following:

  • defense for breach of contract;
  • defense outside policy limits (i.e., attorneys’ fees included within or above the coverage limit);
  • third party employment discrimination and harassment;
  • employment practice liability;
  • cyber liability;
  • lifetime reporting period;
  • full prior acts coverage;
  • defense for libel and slander;
  • defense for failure to maintain insurance;
  • employees recognized as a claimant (i.e., standard insured vs. insured exclusion would not apply); and
  • coverage extended to a spouse or partner.Basic definitions such as the definition of a claim may not be the same on every policy and can have a substantial impact on coverage.  If you do not know why these types of coverage are beneficial for your association or why policy definitions are important, then do not hesitate to ask questions.The costs for claims that may be covered by D&O policies can be substantial, whether defense costs or awards for damages.  It is important for boards to ask questions of their insurance professionals and not automatically select the least expensive policy without comparing available coverage offered on policies in the marketplace.  The Board may also consult with the association’s legal counsel if it has D&O policy questions.

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