D&O Insurance

Congratulations! You have decided to donate your time and energy to serve
on the board of directors for your community and have convinced your neighbors that you are the right person for the largely unthankful role. Guess what? In addition
to the time and energy you will spend as a director, you have also taken on legal liability. In other words, you can be sued for merely being a member of your association’s board of directors. Yikes! Before you run to submit your
resignation, let’s discuss what your protections are when you serve as a director.

Florida appellate law is replete with holdings that community association directors will not be held personally liable for decisions made in their official capacity absent fraud,
criminal activity or self-dealing/unjust enrichment.

While it is great that Florida law protects directors who are trying their best to fulfill their obligations to their community and their neighbors, it cannot prevent someone filing a lawsuit that names individual directors. Even if the lawsuit is ultimately without merit, litigation is expensive and time consuming. This is where director and officer insurance policies (“D&O”) come into play. In its most general sense,
D&O insurance is purchased so that an insurance company will provide a defense for the association and its policy makers acting in their official capacity. There is nothing
within the community association statutes which mandate that associations carry D&O insurance (although there may be such a requirement in your community’s governing
documents). There are several things you need to be aware of with respect to D&O insurance:

  • Not all policies are the same: Policies can vary with respect to what claims are exempted (e.g. claims of breach of contract are usually excluded from the D&O
    insurance policy) and vary with respect to who is covered by the policy (e.g. most D&O insurance policies will cover not only the directors, but also the manager or other employees or agents of the association).
  • Settlement: Ultimately, the parties to a lawsuit control settlement. However, most (if not all) D&O insurance policies contain a clause explaining what happens
    if the insurance company recommends settlement but you disagree with that recommendation.  In some policies, the D&O insurance carrier can refuse to
    pay for any further legal costs if you disagree with its recommendation to settle; in other policies there may be a split in the legal costs going forward if you
    refuse to settle.
  • Timing on claims reporting: All D&O insurance policies require the insured to timely place the insurance underwriter on notice of any claims made so that the
    insurance underwriter can take actions to protect its position. Additionally, it is important that if you switch insurance carriers that you put the new carrier on
    notice of any potential claims that may exist at the time of the carrier change.

From this practitioner’s perspective, D&O insurance is an important protection for community associations to purchase for its leaders so that they may be able to serve
the best interest of the association without fear of legal reprisal. However, please READ the D&O policies and know your rights and obligations contained therein.


Written by Jay Roberts, Esq and originally posted on Florida Condo HOA Law Blog.