Risk & Business Magazine JGS Insurance Magazine Fall 2017 | Page 30
PREVENTION
BY: SEAN M. AHERN, CIC, CIRMS,
VICE PRESIDENT, JGS INSURANCE
An Ounce of Prevention:
How To Protect The Policy That Protects You
C
ommunity associations
typically take great care to
protect their package policies
by taking measures to prevent
fire losses and slip-and-fall
claims and by proactively addressing
conditions on their properties which may
cause such losses. Boards understand an
association’s package policy premium (as
well as an association’s insurability) can
really suffer as a result of claim activity,
frequency and severity. Plus they want to
keep their associations safe and running
smoothly. But often too little thought is
given to protecting the Directors and Officers
(D&O) policy, which arguably is the most
valuable coverage purchased by the board
as it is designed to protect not only the
association but the board itself.
D&O BASICS
D&O policies were first developed by
Lloyds of London in the 1930s after the
crash of the stock market in reaction to the
large number of lawsuits filed regarding
bad investment decisions. Coverage is
designed to protect against acts, or failures
to act, which cause harm to someone else.
Misstatements, negligent acts, omissions,
discrimination, misleading statements,
breaches of fiduciary duty and wrongful
employment practices (hiring and firing)
can all lead to legitimate Directors and
Officers suits. To make matters worse, even
groundless, false, or fraudulent allegations
can trigger the need for a legal defense!
Most associations’ bylaws require the
purchase of D&O coverage, but it would be
foolhardy not to have it regardless as such
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coverage covers not only past, present and
future board members but also their estates,
heirs and the management company itself.
TOUGH LOVE
Now that the importance of proper
Directors and Officers coverage has been
discussed, what can be done to make
sure coverage stays in place at a fair price?
Some associations may need to take a hard
look at how their regular meetings are
conducted and at how interactions and
communications with the unit owners
they serve are performed. Though most
associations’ bylaws clearly lay out how
things are to be done, there are some
associations that just “wing it,” and that’s
where problems can occur.
HOW BOARDS SHOULD MAKE
DECISIONS
Boards should be disinterested, that is, their
decisions should only benefit the common
good of their associations, without any
expectation or intent of personal benefit,
financial or otherwise. Boards should
employ diversity where possible, taking
advantage of the variety of professionals
and experienced people who comprise
their associations. Boards must analyze
themselves periodically to make sure they
are operating within the framework of
their associations’ bylaws. In addition,
boards should take fu