At the heart of volunteerism is the notion of doing something for the common good. For many, choosing to live in a co-op or condo community is also choosing volunteerism – specifically, volunteering for board service. But within that sense of serving the common good lurks the possibility of liability, and that’s what directors and officers (D&O) insurance is all about.
What’s D&O, and How Much Do You Need?
In a nutshell, directors and officers insurance is a form of liability coverage that protects the board members of a corporation or association as indemnification for losses or advancement of defense costs in the event that a good-faith decision made by the board or board members results in damages of some sort.
When it comes to D&O, Alex Seaman, Senior Vice President of insurance company HUB International, recommends that typically, co-op and condominium associations in the New York area “should carry a $1 million limit. Co-ops and condos often also purchase an umbrella liability policy, which increases limits on both general liability and D&O liability. This increase can be anywhere from $5 million to $200 million, depending on what’s needed.” Seaman explains further that “umbrella policies are generally purchased through risk purchasing groups (RPGs), which combine top-rated insurance carriers, each taking a portion of the risk. This allows associations to purchase high limits of umbrella liability at exceptionally low premiums. For example, a typical 100-unit property should be able to purchase $100 million of umbrella liability for a premium of approximately $4,000 per year. Based on these numbers, there’s really no reason not to purchase limits of at least $100 million of coverage.”
Necessity, or Luxury?
Marc Schneider is Managing Partner at Schneider Buchel, a law firm with offices in New York City and Long Island. He represents numerous co-op corporations and condominium associations. Of D&O, he says: “It’s in place to cover the board and board members from any lawsuits against the directors and officers, exactly as it says. However, it doesn’t cover everything, meaning that a board might be sued for discrimination – for violating the Fair Housing Act, for example, or denying a comfort pet – and claims are brought against it. Some D&O policies will give the board a defense with what is called ‘a reservation of rights,’ meaning that they will defend the suit because they have a duty to defend under the policy, but they are reserving their rights – because if it’s determined that the board violated the law, they will not pay any liability that results from the action. The reasoning is simple to explain: you can’t buy insurance that covers you for breaking the law.”
Schneider goes on to explain that some policies will require the carrier to defend the insured up until it has been determined that the law was violated. Other types of D&O policies won’t even give a defense under those circumstances. “D&O is not a free pass to do whatever you please,” he says. “Rather, it’s there for when the board or the board members are sued for the decisions they make.”