Protecting Property Owners’ Associations: Understanding Directors & Officers Liability Coverage

Property owners’ associations (POAs), such as homeowners’ associations and condo owners’ associations, play a crucial role in maintaining community grounds, shared buildings, and other assets. However, leading and managing these associations comes with its fair share of responsibilities and potential risks. 

“The individuals who serve on association boards typically volunteer their time free of charge,” explains Bryant Michels, MiniCo SVP of Architects & Engineers Professional Liability and Property Owners’ Association Liability. “Yet, they can come under fire for any number of reasons — their own mistakes and oversights, as well as unfair or unreasonable accusations from disgruntled residents. Aside from the association being at risk from lawsuits, association board members can be held personally responsible for claims made against them, which, in a worst-case scenario, can be financially devastating.” 

Let’s say a homeowner claims their HOA issued a fine for the homeowner’s holiday decor as an act of discrimination, and they decide to sue the board for damages. The court rules in favor of the homeowner, and the HOA is ordered to pay a steep settlement. The individual HOA members could be personally responsible for covering attorney fees and settlement costs — unless they had insurance coverage to protect them.

Directors and officers (D&O) liability coverage for property owners’ associations is a vital component in safeguarding those who serve on the board or hold leadership positions within property associations. In this blog post, we will explore what D&O coverage includes, why it is essential for POAs, and how it protects against common risks association board members face.

What Is Directors & Officers Liability Coverage?

Directors and officers (D&O) liability insurance is a specialized policy designed to protect the people who serve within a POA. With D&O insurance, property owners’ associations have financial protection in case a board member faces legal action for alleged wrongful acts while carrying out his or her duties.

Property owners’ associations, also sometimes called community associations, can include many types of properties — homes, condos, residential co-ops, commercial properties, mixed-use properties, and more. Coverage extends to board members, officers, and anyone involved in decision-making processes. 

What Does D&O Coverage Include?

D&O liability coverage offers protection against damages and defense costs an association or one of its board members or officers may face due to allegations and lawsuits. This may vary depending on the policy, but it typically includes:

• Legal defense fees: Dissatisfied community residents may file lawsuits against POA board members, alleging any range of mismanagement or wrongdoings — including things like mishandling association funds, misappropriating funds, or failing to act in the best interest of the community and its residents. D&O liability insurance provides coverage for legal expenses incurred during the defense of legal claims.
  
  
• Settlements and judgments: If a claim against the board or its members results in a settlement or judgment, the insurance policy will provide financial support to cover these costs. Without coverage, board members would be personally liable for the damages.
  
  
• Employment practices: The coverage can also protect against claims related to employment practices, such as wrongful termination, discrimination, or harassment. For example, ​​if an employee or vendor working with the association alleges wrongful termination, discrimination, or harassment, D&O liability coverage protects the board members and officers from personal liability and provides support for legal defense.

Finding Coverage for Difficult-to-Place Risks

The admitted insurance market offers a range of D&O liability coverage options to property owners’ associations. However, there are circumstances where the admitted market deems an association or board too risky to cover and either declines coverage to a new submission or refuses to renew an existing account. This can include: 

• History of claims: A POA may have had a large claim or series of claims in the past — for example, recurring issues with unhappy homeowners that led to expensive lawsuits and subsequent payouts. This may prompt concern from their existing insurance carrier who decides they no longer want to shoulder the risk of a future costly claim.
  
  
• High-value units: Some carriers are reluctant to extend coverage to associations that serve high-value properties. A condo complex made up of units that each cost an average of $2 million, for example, might be flagged as potentially too costly a risk, making it difficult for the association to find coverage.
  
  
• High proportion of rental units: Let’s say that in a building made up of 100 condos, 80 of the residents are renting. The disproportionate ratio of renters to owners could disqualify the POA from coverage in the admitted market.
  
  
• New community associations: If a brand-new association still has the community’s developer or builder serving on the board, finding coverage can be challenging. Often, when the builder transfers responsibility for the association to the community, there is an elevated risk of claims occurring. Many carriers tend to anticipate issues with this hand-off and may be reluctant to offer coverage before the transfer of responsibility takes place. 

Michels explains that in these situations, POAs still have options outside the admitted market through a Property Owners’ Association liability program like MiniCo’s. “We provide POAs with a way to get necessary D&O coverage when the admitted markets won’t consider it. We are competitively priced in a harder-to-place space. To do this we want to know all the details of the risk and why the association is having trouble finding coverage. This allows us to create an underwriting solution for the challenging risk.”

Directors & Officers liability coverage is an essential component of risk management for POAs. It provides legal protection, financial security, and peace of mind to those serving on the board or in leadership roles. For your clients who are board members or actively involved with a property owners’ association, D&O liability is essential coverage to protect their financial interests as well as to help ensure the continued success of the association.

MiniCo’s Property Owners’ Association liability program works exclusively with AM Best A-rated carriers to offer customized solutions for HOAs, condo owners’ associations, residential co-ops, mixed-use owners’ associations, and more. Contact our program experts for details and to get a quote.