In the process of conducting their duties, HOA Board Members can run into individual legal issues their association’s liability insurance doesn’t cover. Board members need a different type of policy to cover themselves specifically in the event of legal issues: Directors & Officers Insurance.
What Exactly Is D&O Insurance?
A D&O policy is a form of professional liability insurance. Similar to doctors having medical malpractice insurance to cover human error, your D&O policy protects your HOA board members from legal action taken by residents seeking compensation when they believe a board member has been negligent.
The policy guarantees the Board Member adequate liquidity in order to cover damages, should they lose a suit. This protects them from risking personal financial loss or even bankruptcy (provided the amount of damages owed doesn’t exceed the coverage limits). And the insurance company will help provide a legal defense on the board member’s behalf, so they’re not paying exorbitant legal fees out of pocket.
Does My Personal Liability Policy Protect Me?
As a member of the association they govern, Board Members will have personal liability protection under their homeowners policy. However, these policies usually only cover actions taken as a private individual. Most insurance companies won’t cover “official business” conducted on behalf of the board or association. It’s important to carefully read your personal liability policy to be sure, though.
What Exactly Does It Cover?
As a member of the board, you’re held to what’s called a fiduciary standard in all your dealings. This basically means you’re expected to uphold the highest level of integrity when it comes to handling association business, especially in regards to money. Any instances of suspected mishandling of funds, self-dealing, or failure to pay association debts can land the board in hot water.
Beyond financial liabilities, Board Members can be sued for actions towards community members, including libel/slander, discrimination, injuries, and violating someone’s privacy. Conflicts of interest and violations of governing documents are also things Board Members get sued for.
What Else Do Board Members Get Sued For?
Buying a home is a massive investment, especially if there’s an HOA involved. As a result, people are extremely protective of their property and often take any issues personally. While some instances may seem petty or trivial, the aggrieved party doesn’t feel that way.
Some things HOA board members get sued for:
- Insufficient oversight
- Misuse of association funds, (i.e. commingling)
- Conflicts of interest
- Libel or slander
- Violation of privacy
- Failure to pay HOA debts
- Self-dealing
- Unlawful discrimination in housing
- Violation of governing documents
- Aiding and abetting criminal or negligent actions of others
- Illegal or improper eviction
- Injuries on the property
Protecting yourself while acting on behalf of the HOA board you serve is important, and it’s as simple as having the right policy coverage. Read more about residents’ rights in an association on our blog or reach out to us if you have questions about acquiring D&O insurance for yourself or your Board Members.