LESSON LEARNED dilemma of enforcing rules and regulations , but also whether to maintain amenities such as clubhouses , pools , fitness centers , etc .
With such a wide scope of exposures facing community associations , it is very important to evaluate not only the need for specific coverage such as D & O , but also the value of that coverage . For although state and federal statutes have been enacted to protect volunteers of community associations , such laws may not fully address the myriad types of actions that can arise in the course of one ’ s service on the board of a community association . When one considers additional factors common to community association boards — such as member inexperience or an inability to grasp the true depth of the duties and obligations associated with service on a board of an association — quality of coverage is of even greater importance .
When looking at D & O coverage , there are primarily two types : embedded coverage and standalone coverage . Embedded D & O is provided via endorsement to the General Liability Section of an association ’ s Package Policy and may share policy limits with other lines of coverage . This type of coverage generally offers basic protections for directors and officers and commonly contains exclusionary language with regard to specific exposures such as employment practices liability , claims alleging breach of contract , failure to adequately procure and maintain insurance , and claims seeking non-monetary damages . On the other hand , standalone coverage is provided by a separate , dedicated D & O policy form with an individual limit available precisely for such claims and is quite a bit more comprehensive in terms of the coverage it provides .
Choosing which type of coverage is best suited for your association depends on exposure factors such as the size of the association and the values associated with the individual units comprising the association , whether the association utilizes the services of a community association manager or employees , what types of amenities are offered , financial position , and the sophistication of the business practices involved . When considering the sophistication of business practices of an association , think in terms of overall association revenues , financial concerns with regard to the levying and collecting of assessments , as well as revenue and costs associated with amenities such as snack bars , restaurants , marina facilities , etc . One should also consider how the association handles maintenance of common areas and services provided to members . Are there contractual relationships with third party vendors ? What are the values of the contracts involved ?
In evaluating these factors , there may be instances where embedded coverage makes sense such as a small condominium or homeowner association with no amenities , no community association manager or employees , minimal contractual relations and small financial balances . The key is to make the evaluation . Look at the factors and make a determination after weighing the exposures with regard to the coverages offered .
One should not , however , disregard exposure factors and simply rely on embedded D & O coverage as a “ catch all ” to protect directors and officers in the performance of their duties , even in the wake of premium savings . For then , the question becomes one of offset .
WILL PREMIUM SAVINGS OFFSET THE COST TO AN ASSOCIATION IN THE WAKE OF A CLAIM THAT IS NOT COVERED ?
What about subsequent claims ? In this era of ever-rising litigation costs and large jury verdicts , the answer to that question is no : premium savings will not offset the cost to an association in the wake of an uncovered claim . That may be a hard lesson to learn , especially when trying to save pennies and not waste them . +
BY : WAYNE DOW , VICE PRESIDENT , PROGRAMS , PREFERRED PROPERTY PROGRAM A SUBSIDIARY OF JGS INSURANCE
Wayne Dow is a graduate of the University of Massachusetts and Massachusetts School of Law . He began his professional career in the practice of law in Boston , MA handling Insurance Defense , Landlord Tenant Law and Corporate Transactional work . Upon moving to CT Wayne joined Travelers Bond and Specialty Insurance first as Fidelity / Crime Claim Counsel and then moving over to the underwriting side of the business with responsibility for a newly developed program of insurance addressing the needs of the Community Association Industry . Wayne then served as Vice President of National Program Business for Kevin Davis Insurance Services prior to joining JGS .
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