Page 11 - CooperatorNews New York Expo 2021

COOPERATORNEWS.COM COOPERATORNEWS — OCTOBER 2021 11 Representing residential and commercial property owners and management companies throughout the metropolitan area for over forty years.  General Representation of Cooperatives & Condominiums  Mortgage Refinances & Condominium Loans  Landlord-Tenant Proceedings  Real Estate Litigation  Transfer Agent  Foreclosure  Bankruptcy Proceedings  Attorney General Filings  Land Use & Zoning  Closings Contact: Email: Websites: Eric M. Goidel, Esq. egoidel@borahgoldstein.com directorprotector@borahgoldstein.com www.borahgoldstein.com www.directorprotector.com Manhattan Office l 377 Broadway New / York, NY 10013 T: (212) 431-1300 l Queens Office l 108-18 Queens Blvd Forest Hills, NY 11375 T: (718) 263-6611 l l Dennis H. Greenstein, another attor- ney with Seyfarth Shaw, adds that “while there are numerous standard provisions and coverages in the typical D&O policy, each policy is unique. Board members and managing agents must consider what the particular policy provides, and what acts are specifically included and excluded. It is critical that every board understands what is being covered and excluded, the amount of the deductibles to be paid by the insured on each claim, and the notice requirements that must be given to the insurer of any possible and actual claims. Insurance companies fre- quently initially deny coverage if the insured failed to give proper notice of a claim as re- quired by the policy—and not just claims that have risen to the level of actual litiga- tion, but including ‘threatened claims’ as well. It’s therefore best practice to give notice to your carrier upon any threatened claim.” Mark Hakim, an attorney with the New York-based firm Schwartz Sladkus Reich Greenberg Atlas, points out that “D&O in- surance also does not cover personal injury suits, which would be covered separately, by the building’s general liability policy. No board member wishes to jeopardize his or her personal assets while being an unpaid volunteer. D&O insurance is intended to provide protection to the various board members acting in good faith in furtherance of their duties as directors. Generally, so long as the insurance is maintained without interruption, coverage continues to those board members, even following their depar- ture from the board. Obviously, this cover- age would only protect them from their ac- tions while they were board members—not before or after.” The Business Judgement Rule In the United States, explains Hakim, most decisions made by a corporation’s board are protected by what is known as the ‘business judgement rule’ which, in es- sence, holds that courts will not interfere with or second-guess a board’s actions (or inactions), provided there is no evidence of discrimination, self-dealing, and/or bad faith on the part of the board, and that the decision was made “for the purposes of the cooperative, within the scope of its author- ity, and in good faith.” This standard is not intended to grant unchecked authority to a board, or to give a negligent or incompetent board the proverbial ‘get-out-of-jail-free card’; it just means that their decisions will generally be upheld, as long as the foregoing standard is met. That said, not all decisions are protected under D&O insurance. Like business judge- ment, “D&O coverage generally does not apply to intentional, fraudulent, or reckless conduct,” says Cohen. “It also does not apply to acts taken by directors and officers out- side the scope of their offices. “In addition,” he says, “contract claims or officer are often excluded, as well as claims den by laws or statutes that require certain (e.g., breach of a proprietary lease) typically by one officer or director against another.” would not be subject to D&O coverage, be- cause contract claims are not typically as- serted against individual directors. Personal proval is required, points out Cohen. “Board itself, the board will be subject to the busi- injury claims—such as slip-and-falls on the member duties are determined by the gov- condo or co-op property, for example—are erning documents of the condo or co-op, members to make informed decisions based not covered by D&O insurance, but would so if unit owners or shareholders have ap- likely be covered by general liability insur- ance. Specific policies will have specific ex- clusions of other claims that are not covered. board members will not be liable. This is a Claims by the corporation against a director general rule, however, and could be overrid- Board members are likely not liable under responsible for compliance with applicable the scenario where member/shareholder ap- proval rights for particular expenditures and mentioned, this is a deferential standard that decline to approve those expenditures, the insulates board members from liability, as repairs or remediation. The board may be laws. As for decisions made by the board ness judgement rule, which requires board on their business judgement.” As previously continued on page 27 See us at Booth 107