Why Should I Buy D&O Insurance?
You might think “Directors and Officers” insurance is only for big, Fortune 500 companies. In fact, D&O coverage, is very useful for the smaller LLC, and is a must have, if you volunteer to be an Officer of an HOA or Property Owner’s Association. D&O pays for wrongful acts committed by any insured, or any other person for whose acts the insured is legally responsible. Such wrongful acts must be committed by any insured while acting solely in the conduct of management responsibilitiesfor the Association, with coverage typically set at $1 Million. (Previous Figures are typical example coverage amount).
Every Director and Officer of a Home Owner Association Board has personal responsibility for HOA business. The basic purpose of Directors and Officers insurance is to protect Directors and Officers from claims made because of wrongful (or allegedly wrongful) acts or omissions made while acting in their individual or collective capacity on behalf of the Home Owners Association.
General Liability insurance, or “GL”, will not protect Directors and Officers in the same way. GL insurance is to cover against third party bodily injury and property damage. Directors and Officers insurance covers against third party financial damages and other claims not covered under General liability.
Here's a list of scenarios in which Directors and Officers have liability:
· Continuing a wrongful practice after learning it's wrong
· Libel or slander
Say you are President of the HOA, and give a quote to a newspaper about an ongoing property dispute with a Unit Owner, or adjacent land owner, and they decide to sue YOU personally…..
· Failing to pay HOA debts in a timely manner
· Improper management resulting in losses
Example: Your Board meets and decides to install lights in the darkened parking lot, but it slips your mind to call the Management company, or contractor to install the lights. It’s a ‘volunteer’ job anyhow, and you are busy. But, a few weeks later, a HomeOwner is robbed, or worse, killed in the darkened parking lot. As HOA Officer, you could find yourself being personally sued, and paying personally to defend yourself.
· Receiving personal gain while performing as director or officer
· Making decisions based on adequate information and advised judgment
· Ignorance of HOA books and records
· Verifying content of official documents before signing
· Obedience to the governing documents
· Self dealing
· Aiding and abetting illegal actions of others
· Conflict of interest
· Carelessness in conducting business or legal matters
· Failing to see what could be seen by merely looking
· Inducing intentional or careless wrongdoing
· Ignoring statutory or regulatory requirements
· Insufficient oversight of officers or employees
· Nondisclosure of questionable or unlawful actions
· Willful wrongdoing
Because of all these traps and pitfalls a Director or Officer could fall into, or be blamed for, D&O insurance should never be optional. No one should serve on a Board without D&O Coverage unless, of course, you have absolutely nothing to lose. I personally don't know one person that doesn't.
Jim Young
512-565-7509
jyoung@sabotdevelopment.com
Independent Agent
About Author:
A West Point graduate, Jim served in the US Army before settling in Austin. He is a licensed Texas Insurance Agent with Farmers, and licensed Texas Realtor via KW Commercial. He has spent nine years as a Partner in real estate development & construction of both residential & multi-family properties. He consults with condominium developers of convention center hotel & condo projects with 200+ Units. Jim enjoys entrepreneurial pursuits and is also a founder of Solar Capital Group, LLC, an Austin based firm which provides capital and business consulting to commercial property owners and solar installers on how to increase decrease their operating expenses through renewable energy savings & tax strategies. The Dallas Business Journal recently featured Solar Capital Group for funding Arlington Tx’s largest commercial solar system installation.(click for story link)
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