Volunteers are the lifeblood of every home owners association and other organizations; without these leaders the vital work of the group couldn’t move forward. But as with anything, a misdirection or certain actions could lead to claims of wrongdoing. To protect association directors and officers against such claims and allow them to make the best decisions for the association they represent, a specific type of liability insurance is recommended- Directors and Officers (D&O) insurance.
D&O insurance protects the association assets and the personal assets of those serving on boards. The insurance covers corporate directors, offices and their spouses, committee members and managers in the event they are personally sued by customers, vendors or employees for their decisions or actions taken on behalf of the association.
What it covers
D&O insurance generally covers claims alleging:
- An officer acted in his or her personal interest and not that of the association
- Interference with a contract resulting in breach of contract
- Misuse of association funds or misrepresentation of assets
- Failure to comply with workplace laws
- Conflicts of interest claims
- Failure to enforce the association bylaws or other association governing documents and policies
Past, present and future directors and officers are typically covered by the insurance. D&O does not cover unlawful or illegal actions, intentional non-compliance or when directors or officers make decisions for personal profit.
Premiums are increasing
A number of factors are driving D&O premiums up for both for-profit and non-profit associations. Perhaps the most significant reason is the record number of claims filed in previous years along with a record number of payouts. Underwriter worries about liquidity and systemic risks related to the pandemic and its impact on the general economy are also key to the increases.
But associations can take steps to lessen the increase:
- Advance planning allows time to discuss with your insurance agent current market conditions and anticipated cost increases. Actual premiums can change over the course of a just a few months.
- Early discussions with your insurer also gives you time to shop around for equitable, less expensive insurance.
- Should current market conditions dictate a cost increase, being prepared in advance will allow you time to adjust your budget to accommodate the increase.
- You may also be able to find alternative ways to structure your insurance, which might allow you to increase your deductible to reduce your premium or the size of your premium increase.
To give your volunteer leaders the peace of mind they need to conduct the business of your association, it’s a good practice to have D&O insurance. In fact, many seasoned volunteers won’t serve without it. Just be sure you know the ins and outs, and costs of that insurance and plan appropriately.