If you serve on an HOA and COA Board, you need to be aware of the potential liability risk. HOA/COA board members are sometimes named along with the HOA itself when lawsuits are filed, and without directors and officers insurance, board members could potentially have to pay the legal costs of answering a lawsuit, along with any damages awarded. The HOA itself could be on the hook for covering those expenses on your behalf, potentially depleting the community’s reserves in the process. This is why directors and officers insurance is vital for every HOA/COA board member.
Directors and officers insurance = liability coverage for HOA board members
Directors and officers insurance is a type of coverage that protects board members of organizations from personal losses if they are being sued as a result of serving on that board. This is not the same as HOA insurance and COA insurance, as those coverages only protect the assets of the associations and not the personal assets of the board members. Unless they’re based on a breach of fiduciary duty, lawsuits against individual board members are generally dismissed in court fairly quickly. Until then, though, it costs money to defend yourself – which is where the D&O policy comes in.
The separate D&O policy covers the actions of HOA board members. It could also cover inactions, such as failing to perform due diligence or neglecting to maintain shared spaces like playgrounds and clubhouses.
The insurance also covers “breach of fiduciary duty,” such as misusing HOA funds. Such claims are fairly rare, however. Lawsuits are much more likely to be filed for issues like:
- Not following the HOA bylaws
- Insufficient advertisement for elections
- Not counting votes or proxies correctly
- Residents challenging an assessment
- Insufficient maintenance of common areas
- Removing board members improperly
- Variance issues
- Easement complaints
How much does D&O insurance cost?
Directors and officers insurance is usually purchased together with a general HOA/COA policy, and prizes range from a few hundred dollars a year to several thousand for large associations. The coverage price will vary according to factors such as the size of the HOA/COA and also the number of board members and the size of the policy. If you have previous claims, this will also increase the price significantly and could make it difficult to obtain an insurance policy in general. The monthly or annual association fees should cover the insurance expenses the board has.
Who needs directors and officers insurance?
The answer to this is simple. No one is immune to a lawsuit, and every COA/HOA with a board should get D&O coverage. Honeycomb offers D&O coverage as an add-on to HOA and COA insurance policies. Hired and Non-Owned Auto Coverage is another additional coverage if the association uses a car to conduct any type of business or tasks.