Many types of business insurance products use a standardized policy form. General liability, as an example, is typically issued on an ISO CG0001 form. Commercial auto and property policies also generally use an ISO form. Directors and officers insurance (D&O), however, is one of a handful of insurance products that do not have a “standard” policy form. For organizations that purchase D&O coverage, this means careful due diligence is required to ensure competing proposals offer equivalent coverage.
Community Associations, in particular, need to be very careful when selecting a D&O policy. Insurance brokers will often include D&O coverage inside the community package policy. This “packaged” D&O insurance seems attractive on the surface: convenient and cheap. However, that convenience and the low price almost always comes with a caveat: dramatically inferior coverage.
Elements of Directors & Officers Insurance
To make better sense of this, let’s start by reviewing the elements of a properly written D&O policy and why those elements are important to a community association:
- A broad definition of Insured. A quality D&O policy will provide coverage for all past, present and future board members. It will also include volunteers & employees. Property managers should be included as an additional insured to protect the board from an indemnity agreement.
- Non-monetary claims. Most D&O claims filed today are not alleging a financial loss but assert non-monetary damages. Examples can include contested elections, challenges to assessments, and issues with CCR provision enforcement.
- Defense costs outside the limits of coverage. D&O claims often incur large defense costs, typically attorney fees. The best D&O policies do not pay for defense costs out of the coverage limit. This means that every dollar of coverage is available to pay a settlement or judgment instead of attorney fees.
- Favorable consent-to-settle or “hammer” clause. If you feel the insurance company should not settle a claim then a soft or favorable hammer clause is important. This clause determines how much the insurance company will continue to pay for defense and settlement, beyond the offer they originally agreed to with the plaintiff.
- Employment practices liability. Claims for improper hiring, firing, discrimination of employees or even employees of your vendors are frequently brought against association boards. A quality D&O policy will include this coverage automatically.
At Safeguard Insurance, we offer D&O policies from several insurance carriers that specialize in community association policies. Travelers, USLI, and Philadelphia, for example, all offer extremely well-written D&O policies for HOA/COA and other community associations.
Directors & Officers insurance is one of the most important policies a community association will purchase. It should always be written on a stand-alone policy, not combined with your general liability coverage. D&O insurance is not an area in which the board of directors should look to cut corners by buying a low-cost inferior policy. The board should work with an agent that understands their particular needs and can help find the proper coverage at a fair price.
Please contact us today for a no-obligation proposal of your HOA/COA insurance needs!