Risk & Business Magazine JGS Insurance Risk & Business Magazine Winter 2017 | Page 29

DIRECTORS AND OFFICERS COVERAGE
relatively easy to understand, but D&O
policies can be a challenge, written with
terms and conditions unfamiliar to most
non-insurance professionals. What we’ll
do here is highlight a few of those terms
and conditions and emphasize some of
the important coverages that must be in
place to provide you, your spouse, and your
estate with comprehensive protection:
CLAIMS-MADE
This is one of the first terms to look for
and also one of the most important. Your
policy should be written on what’s known
as a claims-made basis.
Some policies are written on an occ urrence
basis, which means in order for a claim to
be covered, the claim must occur and be
brought during the policy period. Claims
which occurred prior to the policy period
(which is usually the case with D&O suits)
would not be covered by an occurrence-
basis policy.
A claims-made insurance contract is
designed to cover claims which occur any
time within or prior to the policy period.
For example, if the board insisted three
years ago that a unit owner remove his
large, unapproved American flag, and
today a suit is brought after that unit
owner watched a similar situation on the
news program 20/20, the claims-made
policy would provide adequate protection
to current board members. In fact, a
current claims-made policy would offer
protection even if no prior D&O policy was
ever purchased.
Be sure your claims-made policy does not
have a retro date (which serves to exclude
coverage for claims which occurred
prior to a given date) and that coverage
is specifically provided for full prior
acts. Some policies may exclude or limit
coverage for the acts of previous directors
and officers. If you think of some of your
predecessors, this clause will cause you to
lose sleep!
WHO IS AN INSURED?
When reviewing your D&O policy, pay
close attention to who is an insured. A
good policy will cover the association and
include past, present, and future elected
or appointed directors, trustees, officers,
employees, committee members, or
volunteers of the community association,
including their estates, heirs, legal
representatives, or assigns.
DEFENSE AND PAYMENT
Make sure your policy provides for your
defense even if allegations are groundless,
false, or fraudulent. Ideally, defense costs—
typically the bulk of the monies needed—
will be outside or in addition to the policy
limit. Preferably, the D&O insurer will
have a duty to defend the community
association, that is, provide attorneys who
specialize in the defense of D&O claims.
“A CLAIMS-MADE
INSURANCE
CONTRACT IS
DESIGNED TO
COVER CLAIMS
WHICH OCCUR
ANY TIME WITHIN
OR PRIOR TO THE
POLICY PERIOD.”
NONPECUNIARY RELIEF (AKA NON-
MONEY)
Make sure your policy provides defense
and indemnity against lawsuits seeking
equitable relief. Many policies omit coverage
for non-money claims, not surprisingly, as
these are the most common.
EXCLUSIONS TO COVERAGE—YOU
GOTTA READ IT ALL!
As with practically all insurance policies,
modifications of coverage are typically
found toward the back of the contract
in the exclusion section. Here, coverage
which was originally granted in the
beginning pages of the contract is often
removed or significantly modified by the
insurer. Jackie Andersen, Claim Director
of Travelers Bond Claim, provides some
reasons why: “While insureds sometimes
believe an insurance policy operates on an
all-risks basis, policy exclusions exist for
several purposes including elimination of
coverage for uninsurable loss exposures,
reduction of the likelihood of coverage
duplications, eliminating coverages
requiring special treatments, and assisting
in maintaining premiums at a reasonable
level.”
Though D&O policies can cover some of
the broadest causes of loss that face an
association, they do have their limitations.
Exclusions, because they relate to policy
pages you read (and fully understood, right?)
just a few minutes ago, may refer to several
coverage sections, and these connections
may not be readily apparent. That’s where
the advice and expertise of your insurance
agent and legal counsel are needed.
Luckily, D&O insurance exists and is
readily available at a moderate price to
community associations who have good
loss experience. To help keep losses under
control, associations should pay careful
attention to their choice of property
managers and board members. Residents
knowledgeable in the fields of law,
insurance, finance, and human relations
(to name a few) should be encouraged
to join the board. Board members
should know and abide by the governing
documents of the association as closely
as possible. The formation of separate
subcommittees is often a good idea to
address specific tasks or problems.
Ideally, board members will work
side-by-side in the great undertaking
and responsibility that is the effective
management of their association. But if
problems arise, it’s good to know there’s
D&O. +
In 2001, Sean Ahern joined JGS Insurance
as a producer and through his commitment
over the years to the NJ Community
Association Institute earned his CIRMS
designation (Community Insurance and
Risk Management Specialist) in 2014. Sean
continues to enjoy developing superior
coverage options for his community
association clients, working closely with
Boards of Directors and other professionals
to meet the challenges presented every day
in the ever-changing world of community
associations.
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