This week’s column was written by David L. Hood III of Hood Hargett & Associates, Inc., an insurance agency based in Charlotte.
The first question a person should ask before serving on a homeowners’ association (HOA) board is: “Does the association have a directors and officers (D&O) liability insurance policy in place?”
That’s because D&O insurance protects both past and present HOA board members, their association managers, employees, volunteers and the community itself from lawsuits arising out of the management of the HOA. In addition, the insurance can protect and defend board members if they’re sued personally by a disgruntled association member.
The second question that should be asked, but is often not, is, “What type of D&O policy does the association have in place?” This question is key because not all policies provide the same coverage. A quick way to answer this question is by asking if the D&O policy is a standalone policy, or has D&O coverage been added by endorsement to the HOA’s commercial package policy.
While the endorsement to a commercial policy will provide adequate coverage for most claims, a separate, standalone policy will often provide more complete and extensive coverage.
There may be restrictions in the typical commercial policy that are often not part of a standalone policy. For example, lawsuits seeking non-monetary relief and discrimination claims may not be covered by a standard commercial policy.
A non-monetary claim could arise when an owner contests the results of an election and demands a new one, or when there is a challenge to an architectural or landscaping review decision, or when an owner tries to enforce provisions contained in the community’s declaration of covenants, conditions and restrictions.
As to discrimination claims, these are not always the result of racial, gender, age or sexual preference. In fact, they arise more often in communities when there is a differing opinion on whether a homeowner’s property is in compliance with the HOA governing rules and regulations.
While the association will pay more for a standalone D&O policy, the cost difference is not dramatic. Premiums are determined by a number of factors, including the limits of coverage chosen, the proactive and protective measures in place (risk reduction), the total number of units in the community and the claim history.
To determine what type of policy, limits of liability and deductibles are right for your association, it is wise to consult with a licensed insurance agent.
Originally published in the Charlotte Observer on October 31, 2013.