Condo Media - February 2022 - 35

WHAT IS DIRECTORS
AND OFFICERS LIABILITY
INSURANCE?
Directors and Officers Liability (D&O)
insurance protects individuals from
personal losses resulting from serving
as a director or officer of an organization
or entity. Additionally, D&O
protects the organization, such as an
association or trust itself. While most
community association documents
provide that board members are indemnified
by the community association
and its members, some documents do
not have this provision, and the wording
in many documents can be problematic
with regard to limitations of the indemnity
that is being given.
The D&O policy provides a backstop,
so-to-speak, to help limit potential liability
for board members. In addition
to board members, the coverage can
also extend to property managers, former
members of the board, volunteers,
and committee members.
WHAT IS COVERED?
There are many claims that can be
made against a community association
and/or its managing board, but often,
the claims made involve some allegation
that the board member or the association
committed a wrongful act.
Often, the alleged act involves a claim
for breach of fiduciary duty, negligence,
or that the action taken was incorrect
and/or alleges a failure to act when
there was a duty to do so.
For example, if an owner is unhappy
with the board's enforcement of a rule
or restriction, he or she may claim that
the rule is being enforced unreasonably,
selectively, or results from discrimination.
If the owner brought suit
against the association and its members,
the D&O policy (subject to the
policy deductible and related terms)
is likely to respond to the claim and
provide defense of the claim on behalf
of the board and association. Any form
of litigation is expensive, and if a claim
is brought, even one that has little
There is nothing as frustrating as
receiving a denial from a D&O carrier for
what would otherwise be a covered claim,
simply because the initial demand or
allegation was not reported to the
carrier in a timely manner.
merit, the claim must be defended.
Accordingly, the single most valuable
benefit of having a D&O policy is the
benefit derived from the insurance
carrier paying for the defense of a
claim. It is not uncommon or unheard
of for defense costs to amount to the
tens of thousands of dollars even when
the claims being made seem relatively
straight forward or lack legal merit.
WHAT'S NOT COVERED?
Not every suit or claim will be covered
under a D&O policy and not all D&O
policies are created equally. Claims
that result from personal injury or
stem from damage to property will
typically not be covered.
Likewise, intentional wrongful
acts and claims that derive from unreported
demands will generally also
not be covered. There is nothing as
frustrating as receiving a denial from a
D&O carrier for what would otherwise
be a covered claim, simply because
the initial demand or allegation was
not reported to the carrier in a timely
manner. For this reason, it is crucial
for board members and their agents to
notify the insurance carrier in writing
when a demand, claim, or any allegation
is made, which has the potential to
turn into litigation.
Likewise, as mentioned, D&O
policies tend to differ greatly in what
is covered and what is not covered. Socalled
packaged policies that
are not a standalone product may
be less expensive but may have important
exclusions.
One exclusion recently encountered
by a client (and one that is not at all
desirable to have) is an exclusion
for any claim that does not involve
a demand for monetary damages.
Within community associations, it is
much more likely that the board or
association is going to be sued in order
to compel action or restrain an action
then it is for a straightforward demand
for money.
Unfortunately for our client, because
the claim they were facing did not
involve a demand for a sum of money,
the association was forced to fund the
defense of the claim out of pocket.
Likewise, claims of discrimination
are also not always covered and
something that every board should ask
when reviewing D&O insurance.
Accordingly, we advise all of our
clients to opt for an " expanded " or
" enhanced " D&O policy, and one
that is offered by a knowledgeable
insurance agent specializing in
community associations.
n MARK EINHORN, ESQ.
IS A PARTNER WITH THE
LAW FIRM MARCUS, ERRICO,
EMMER & BROOKS, P.C. IN
BRAINTREE, MA.
February 2022 CONDOMEDIA 35
Condo Media - February 2022

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