Director's and Officer's Insurance - Part 1
Tifinni A. Tegan
What homeowner associations need to know about Directors' &
Officers' liability - Part 1
by Tifinni A. Tegan, CIC
With commentary from HOA insurance expert Kim Angeli
What is Directors' & Officers' Liability
One of the most important insurance policies in any homeowner
association's financial portfolio is also one of the most
overlooked and misunderstood: Directors' & Officers' (D&O)
A good D&O liability insurance policy protects both past and
present HOA board members, the property manager, employees,
volunteers, and the community itself from lawsuits arising out of
the management of the HOA. This could include any number of
HOA-related issues, such as a new building project, a foreclosure
against a property owner, or a complaint filed by a homeowner.
Are all D&O liability policies the
No. Depending on the insurance carrier, there can be a
broad range of differences between what each D&O policy covers
and what they exclude.
One quick way to tell if your HOA's D&O liability coverage
is sufficient is to determine whether you have a separate
"stand-alone policy" or if your D&O has simply been added to
your HOA's commercial property and liability package policy.
"Boards often develop a false sense of security regarding their
D&O coverage," said Kim Angeli, President of Powell, Angeli and
Langford Insurance in Raleigh, NC. "They see it checked off
on a box on their insurance package and think that it affords them
"The two biggest D&O claims against HOAs in the country,"
continues Angeli, "are non-monetary and discrimination
claims." Both are specifically excluded from the vast
majority of commercial package policies on the market, including
those written by recognizable, brand name insurance companies.
"They're excluded for a reason," Angeli said. "The
endorsement costs about $150 to add to the package policy, so it
doesn't afford much coverage. You get what you pay for.
If you take out the endorsement and read it, typically the first
two paragraphs are what they cover and then the next three pages
are the exclusions."
Conversely, the stand-alone D&O liability policy
underwritten by CNA Insurance Company and recommended by Angeli was
created to protect HOAs, so it provides coverage for claims not
covered by most other insurers, like discrimination and
"Something as important as D&O deserves its own policy,"
How are HOAs affected by discrimination
One of the most common D&O claims facing HOAs today are
lawsuits for discrimination, which in this case has nothing to do
with race, gender or sexual preference.
They typically involve a property manager doing a drive-through
of the community and taking note of a violation of the community
bylaws-such as a home painted purple. They proceed to send
the homeowner a letter asking them to put their property into
compliance with the HOA's governing rules. The property owner
in turn feels they are being discriminated against and files
Angeli described a discrimination claim in which a board told a
single family homeowner he could not build a fence.
Unbeknownst to the current board, a past board had allowed another
neighbor to build a similar fence three years prior. The
homeowner filed a discrimination lawsuit against the board, the
HOA, and the property manager.
"The HOA lost the case at trial and had to pay a $7,000
settlement to put the homeowner's fence back up," Angeli
said. "It's really the legal fees that drain you though. In
this particular case, the legal defense costs were over
"The board told one owner he couldn't build a fence," said
Angeli, "and a prior board told another owner three years ago he
could build the same fence. So a precedent was set.
That's when boards get into trouble. When they don't know
what was approved prior to them serving on the board. If they
had kept their old package policy in place, this claim would have
been paid out of their own account or a special assessment."
In this case the HOA had a D&O policy written through Ian H.
Graham Insurance and the claim was paid.
To be continued… Part 2, Developers &
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
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
CNA is a registered trademark of CNA Financial Corporation.
Copyright ©2011 CNA. All rights reserved.