HOA board members make honest mistakes from time to time. Directors and Officers Liability Insurance (often referred to as “D&O”) provides protection for them in the event they are sued for errors that occur or decisions they make while acting on behalf of the homeowners association. It is usually different than the association’s liability insurance.
While it does not cover everything, D&O coverage offers protection to individual board members so they are not held personally liable when a problem arises. The coverage applies to negligence, omissions, mismanagement of funds or policies, or misleading statements by board members, as long as they are accidental and done without malice. D&O coverage does not apply to willful acts such as slander, defamation of character or intentional wrongdoing.
Not all D&O policies provide the same coverage, so it’s very important to read the fine print. You may find that your general property and liability insurance package includes some type of D&O liability coverage, but read it carefully! Some HOA insurance packages exclude many of the reasons for lawsuits against HOAs today – non-monetary and discrimination claims – or the policy limits are inadequate.
A discrimination claim could be filed by a homeowner if, for example, they were prohibited by a board member from painting their unit purple even though a previous board member allowed it for another homeowner in the community. As for non-monetary claims, let’s say the HOA board has a regulation that homeowners cannot have pets. A homeowner may sue the board over the pet regulation and seek non-monetary damages. Non-monetary damages are not covered, but a D&O liability policy would cover the board’s legal cost for defending themselves.
If a former association employee sues the board for wrongful termination, the costs may be covered under Employment Practices Liability Insurance (EPLI) which can be included in a D&O policy. You may not need EPLI if your association has no employees or payroll. However, if your association employs clerical and maintenance workers, for example, you need a D&O policy that includes it.
California law currently requires common interest developments or HOAs with 100 or fewer separate interests to carry at least $500,000 of D&O insurance and those with more than 100 to carry a minimum of $1,000,000 of coverage. Without adequate D&O coverage in place, board members could be subject to substantial expenses that are not covered by insurance. This could be financially devastating and may make the purchase of a stand-alone D&O policy for your HOA a wise decision.
To find out if your board has adequate coverage or to explore your options for Directors and Officers liability homeowner association insurance, get in touch with us today.