The Ultimate Guide To HOA Directors & Officers (D&O) Insurance
Even though insurance is becoming a vital necessity for the Community Association Management (CAM) industry, it’s a very complicated and confusing topic, especially for buyers. As a premium agent of high-quality insurance providers for HOAs and Condominiums, Looshki is making a dedicated effort to uncomplicate some of the most important insurance information that policyholders should know. These tips and explanations are designed to offer a general understanding of insurance, so if you have specific questions about purchasing new insurance, or about a policy you currently hold, we encourage you to call us (or a local, trusted insurance agency if you’re outside of Utah) and let us go through all of your needs to make sure you’re completely covered.
What is D&O Insurance?
Directors & Officers liability insurance, often called D&O coverage, is a common category of insurance across a variety of industries. The core concept is that it offers a level of protection to decision-makers. For HOAs, at minimum, this means coverage for the existing Board of Directors from any decisions they make that a homeowner may find problematic.
Because D&O insurance isn’t a legal requirement (like car insurance is in some states, for example), every policy will differ. There is no ‘one-size-fits-most’ or even ‘one-size-fits-some’ policy template that insurers will follow. Different HOAs will need different things covered, so it’s incredibly important to work with your local professionals to understand your association’s needs specific to your governing documents and state laws.
Board members, mostly, but association employees or contract workers who in some way contribute to a decision can also be covered.
Example: Property Managers, or Property Management Companies
D&O is coverage protecting decision-makers from lawsuits filed in response to a particular decision and its results.
Example: The board President rejected a request for one homeowner, but approved a similar request for another homeowner with whom they are close friends. The rejected homeowner could sue for discrimination, which would fall under D&O insurance.
100% homeowner satisfaction is a rarity in the property management and community association management industry, and D&O insurance is designed to protect against potential claims filed by the unhappy few.
Example: A homeowner’s request to have an RV in front of their home for two weeks is denied by the board, so they file a discrimination suit. Any legal fees incurred while defending their decision should be covered under a D&O policy.
Types of coverage
There are also two different types of HOA D&O coverage: Monetary and Non-Monetary.
Something to consider when pricing out a D&O policy is that, if there are two policies being offered with what looks to be the same areas of coverage, one is always priced very low, and one is not. There isn’t any in-between.
This is one of those times where you want to remember the old saying, ‘you get what you pay for,’ and choose the higher-priced policy because this pricing usually indicates that it is the Non-Monetary ‘version’ of the policy. Remember how we said that Monetary claims are very infrequent? When looking at that pricing difference, if both policies seem to cover the same things, the cheaper policy is going to be a Monetary policy for that exact reason.
So while the $200-300 policy looks enticing, it will be the #1 reason a claim is denied in the event of a lawsuit--someone sues for Non-Monetary damages, but your affordable policy only covers Monetary claims.
Similarly, when purchasing a packaged policy that bundles D&O coverage with your Liability or Fidelity policy, the D&O policy will almost always be Monetary. So you’ll be faced with the same issue when it comes to denied claims.
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What an HOA D&O Policy IS
What an HOA D&O Policy Is NOT
Don't bother trying to compare - a D&O policy is completely different from these policies, even if there may be overlap in coverage.
A blanket policy covers a range of HOA issues, but is not a substitute for D&O insurance.
D&O Insurance is NOT the same as an Umbrella Policy. Umbrella coverage gives added liability coverage to the association and does not specifically protect the board.
D&O Insurance is NOT the same as Fidelity Insurance. Fidelity coverage protects against employees or board members who are stealing money.
- D&O Insurance is NOT the same as Employer’s Liability Insurance (ELI). ELI covers negligence of work-related injuries or occupational diseases
- D&O insurance is NOT Workman’s Comp. Similar to ELI, Workman’s Comp covers on-site accidents resulting in injury
Where ELI covers the legal fees incurred from an employee’s on-site injury, Workman’s Comp covers the cost to “repair” the injury, so it’s important to have both in addition to a D&O policy because neither of those cover injuries sustained by community members (which is where D&O can offer coverage).
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What to Ask When Shopping for a D&O Policy for your HOA
When shopping for a policy, the most important thing to remember is that the possibilities are truly endless. Protection exists for just about every scenario you can imagine, and then some--the trick is to make sure YOUR policy names that specific protection.
Who Can Be Protected by a D&O Policy?
D&O coverage protects the Board of Directors in place at the time of signing (assuming they all agree to be protected and sign the document), but has the potential to reach a little farther if you decide that’s the kind of policy you want. When talking with your local agency, be sure to ask about:
- Past and future Board members
- Employees (like a Property Manager)
- Property Management Companies (even if you aren’t currently using one, you may in the future)
- Contracted accountants/accounting firms
Can* My D&O Policy Cover General Misconduct?
General misconduct, like discrimination or harassment, is actually the bread and butter of Directors and Officers coverage. The very human mistakes that board members are highly scrutinized for are the ones D&O coverage looks to protect against.
*Remember that this is not a comprehensive list of guaranteed coverage, but of customizable coverage options to discuss and select with your chosen insurance provider.
*Disclaimer: We at Looshki do not condone any of the behaviors listed here. The purpose of D&O insurance coverage is to protect the board and community at large from any accidental or malicious actions made by an individual deviant board member.
Can* My D&O Policy Protect Against More Serious Misconduct?
It’s important to remember that board members are just people living in your community, and sometimes you don’t know your neighbors as well as you think. D&O insurance can help the board plan for the worst-case scenarios and shield them from potential financial burden.
*Remember that this is not a comprehensive list of guaranteed coverage, but of customizable coverage options to discuss and select with your chosen insurance provider.
*Disclaimer: We at Looshki do not condone any of the behaviors listed here. The purpose of D&O insurance coverage is to protect the board and community at large from any accidental or malicious actions made by an individual deviant board member.
Can* My D&O Policy Cover Failure to Perform Expected Duties?
A D&O policy can, and should, account for failure to handle the expectations of the board. HOA board members are very often not experts in the field of their role (not all treasurers will have financial experience, for example), so it’s more common than you’d think that slip-ups or poor decisions that impact the community can happen simply due to lack of knowledge or experience.
*Remember that this is not a comprehensive list of guaranteed coverage, but of customizable coverage options to discuss and select with your chosen insurance provider.
*Disclaimer: We at Looshki do not condone any of the behaviors listed here. The purpose of D&O insurance coverage is to protect the board and community at large from any accidental or malicious actions made by an individual deviant board member.
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Frequently Asked Questions
Cost is dependent on the number of members in your community. D&O policies can cost anywhere between $500 to $2,500 a year, though they can certainly go even higher.
Legally, no. However many condos and HOA governing documents do specify D&O insurance as a requirement for the board.
No. For a policy to take effect, only one board member (or a property manager hired to act on behalf of the board) needs to sign the document.
Typically nothing less than $1mil policy. If you’re being offered something lower, check out the section above about Monetary vs. Non-Monetary policies.
A Retention in a D&O policy is the equivalent of a deductible and usually falls between $1,000 - $2,500.
This is not applicable to HOA’s. A cap table is a term used in a D&O policy for “C” level executives (CEO, CFO, CMO, etc.) in a corporation.
This will usually happen due to lack of coverage. The most common reason goes back to the Monetary vs. Non-Monetary topic: if you have one but the lawsuit falls under the other, it’s a lack of coverage issue.
If a claim is denied by the insurer, the responsibility of payment for associated fees will be determined by a judge.
No, because D&O insurance isn’t rated based on the amount of money the association has (like Fidelity insurance) but instead by the number of units or owners in the community.
Again, while there is no legal requirement for D&O insurance, if your governing documents require it, you will need a policy. However, if your documents do not require D&O insurance and you don't have one, it's important to know that a vendor's E&O policy will not protect your board from D&O-related lawsuits.
E&O, or Errors and Omissions, is more of white-collar licensed insurance. Someone who is licensed by the state, such as a CPA, will hold this insurance for protection in the event that someone else makes a decision based on their words, and the decision goes poorly.
So if you (the board) made a bad decision based on the advice of your CPA, and you were subsequently sued by homeowners, that lawsuit would be covered by your D&O insurance (assuming you had proper coverage). The board could then sue the CPA for giving bad advice, which THEIR E&O insurance would cover (again, assuming adequate coverage).
Buying D&O Coverage for Your Homeowners Association
Remember, this is a lot of information, but it only scratches the surface of what a comprehensive policy can do to protect your community. It is important that you seek out local professionals to go over any coverage you may currently have, the needs your community is most likely to face, and find where any gaps exist that can be filled before it’s too late.
If you’re looking for D&O insurance in the state of Utah, call Looshki today for a free consultation with one of our insurance experts to learn more about how we aggregate only the best policy providers to fit your needs.
Why Choose Looshki?
There is a great irony that comes with choosing an insurance agent. In attempting to protect yourself from risk, you are taking a risk in which agency you choose. Like a soldier standing at the gates, insurance is your last line of defense, should the worst happen. And like those soldiers, if we fail at our job, it’s already too late by the time you find out.
At Looshki Insurance Group, we help mitigate your risk by working directly with you to understand your unique needs. We connect you with a wide range of major providers to find the policy that best meets your needs (and your pocketbook). If you have any issues, we are your primary point of contact, working tirelessly as your advocate to make sure you are taken care of.