As far as insurance policies go, Directors and Officers (D&O) insurance is relatively new. Directors and Officers insurance for condo associations is an even more recent – albeit necessary – policy. Unlike property insurance or liability insurance, many condo owners do not fully understand what directors and officers insurance does or is for.
Condo associations are generally comfortable applying the same analytic process to Directors and Officers Liability Insurance as they do to other coverage lines – looking at limits, sub-limits and retentions. However, this specialized insurance coverage is one that needs a line by line analysis to ensure there are limited coverage gaps. Purchasing this coverage without such analysis – or using a broker who doesn’t understand it themselves – can lead to problems during a claim.
Recently, a Condo Association in Wisconsin found out just how problematic D&O insurance can be when they had a fairly common claim denied. The lawsuit Hunt v. Beach Club Condominium Association, Inc., No. 2012AP2197-FT (Wis. Ct. App. June 4, 2013) centered around a condo association voting to amend their declarations. The clause that the association voted to change was inserted by the developer when the association was formed. The developer – who lived in a house adjacent to the building – gave himself and his family the right to use the condo association’s beach. The Association voted to remove beach access to the developer. The developer then sued the association to restore his access to the beach.
The association sought coverage under the D&O policy they purchased from Auto-Owners Insurance Company. The policy included six exclusions that Auto-Owners likely could have used to exclude coverage but the case did not get past the definition of “damages”. The association argued that the lawsuit asking was restored beach access was in fact “damages”. Auto-Owners argued that this was not a damage as no money was being sought by the plaintiff – only restored access. The Wisconsin court ruled that an injunction to restore access to the beach did not meet the definition of “damages” in the policy. The court’s opinion is available here.
The triggers for property coverage are generally fairly broad (covering direct physical loss) and General Liability is fairly straightforward as well (Bodily Injury or Property Damage the Association is liable for). Both will have a standard set of fairly predictable exclusions (War, Wear and Tear, Criminal Acts, Etc). These are the coverages that insurance agents are used to dealing with and negotiating.
Directors and Officers liability, however, is a newer coverage and every carrier has their own set of coverage triggers and exclusions. Comparing two policies is very rarely, if ever, apples to apples. Many states, including the state of Illinois, require condo associations to purchase D&O insurance regardless of their size, budget or felt need. Since this type of insurance is both required and complex, boards often assess it on price rather than content. It is important to obtain the best coverage for your association as possible for the dollars spent. Contact AssociationProtection.com today to discuss better protecting your organization from directors and officers claims.