Tifinni A. Tegan
What homeowner associations need to know about
Directors' & Officers' liability - Part 2
With commentary from HOA insurance expert Kim
In Part 1 of this article, we discussed the
importance of having a Directors' & Officers' (D&O)
Liability policy customized to the homeowner association's needs,
as they provide coverage for common claims against HOAs, such as
What are non-monetary claims and why is D&O coverage
Non-monetary claims are another example of D&O claims that
are excluded from the commercial property and liability package
policies endorsed for D&O coverage. Such claims are
included in the stand-alone D&O liability policy like the one
endorsed by HOA-USA however.
"Let's say you live in a community that has lake frontage with
big, established trees," said Kim Angeli, President of Powell,
Angeli and Langford Insurance in Raleigh, NC. "The
condominium in question overlooks the lake and trees, but the HOA
board decides to come in and take all the trees out. The unit
owner cannot put a price on what that just cost him in real estate
value. He can't really put a price on it now or in the future
because the aesthetic nature of the community has been
ruined. That's an example of a non-monetary claim."
"If the plaintiff in the lawsuit is not asking for a dollar
amount, package policies endorsed for D&O coverage have a
built-in exclusion to deny these types of claims," said Angeli.
"They're not going to defend at all. It really gives them a
broad brush to deny the claim when there is non-monetary verbiage
in the suit."
This is another reason to have a stand-alone D&O liability
policy like the one offered through Ian H. Graham and underwritten
by CNA Insurance Company. It offers much more coverage,
including protection against lawsuits brought against the HOA for
Is the community developer covered by D&O liability
Though it's fairly common to have a developer on the HOA board,
most insurance companies will not write D&O liability coverage
on an HOA if a developer is still involved with the community and
serving on the board.
"Let's say the developer sits on the board with two other
people. He hasn't completely transitioned the community over
to the HOA," said Angeli. "And let's say the developer makes
a decision about the community with the other board members that
results in a lawsuit. The insurance company is going to cover
everybody except the developer. They're going to exclude him,
which is a huge gap when he's making decisions for the
community. You can have the developer acting on the board for
Should the developer be named in a lawsuit and not be provided
with coverage under the HOA's D&O insurance policy, he could
potentially be responsible for paying his portion of the settlement
out of pocket. When a developer is forced to take such a
serious financial loss, it could be extremely detrimental to the
community as a whole.
"Insurance companies may not write an HOA if there are a certain
number of undeveloped lots. They don't want real estate
activities involved, period. It is definitely a huge
advantage for CNA. I don't know of any other carrier that
covers the developer," said Angeli.
Does having the appropriate D&O liability coverage
help attract board members?
Yes, it could. Having D&O liability coverage that is
tailored to an HOA allows board members to make decisions without
having to worry about costing the community money. They know
that if they make a decision that sparks a discrimination or
non-monetary lawsuit, their D&O liability policy is going to
Having the appropriate protection in place can positively impact
the whole community. "It's almost like having health benefits
as a small business owner. It's a retention tool to get
people to volunteer," Angeli said.
Can your HOA afford to be without the appropriate
D&O liability coverage?
Depending on the number of units in the community, the premium
for a stand-alone D&O liability policy can range anywhere from
$700 to $2,100. Compared to the roughly $150 it costs to
endorse a commercial property and liability package policy for
D&O, the CNA policy offered through Ian H. Graham is more
expensive, but with good reason. It provides much more
"As I tell boards, it's not a matter of if you're at
fault," said Angeli, "it's when the lawsuit hits your desk or your
property manager's desk. You don't have a choice. You
have to defend yourself. If you don't have the appropriate
D&O coverage, you may be pulling out the HOA checkbook and
writing a $10,000 retainer to your attorney! And add to that
another $250 to $300 an hour for them to defend you whether you're
in the right or the wrong."
"You can spend that money on your attorney or you can spend it
on an average D&O premium of around $900. That's a pretty
good return on your investment, and with it comes peace of mind
that you've got the appropriate coverage in place."
To be continued… Part 3, Failure to procure insurance and
the ramifications of special assessments.
Tifinni A. Tegan, CIC, is an Assistant Vice President at
Ian H. Graham Insurance, a division of Aon, the world's largest
insurance broker. Ian H. Graham specializes in providing
Directors' & Officers' Liability and a number of other
coverages to community associations.
Kim Angeli is the President of the independent agency
Powell, Angeli and Langford Insurance in Raleigh, NC. Kim
focuses on assisting community associations with their insurance
needs. She is also a frequent speaker on such topics as
Directors' & Officers' Liability.
Ian H. Graham Insurance is the brand name for the
brokerage and program administration operations of Affinity
Insurance Services, Inc. (AR 244489); in CA, MN & OK ,
AIS Affinity Insurance Agency, Inc. (CA 0795465); in CA, Aon
Affinity Insurance Services, Inc. (0G94493), Aon Direct Insurance
Administrator and Berkely Insurance Agency; and in NY and NH, AIS
Affinity Insurance Agency.
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