Why Every Condo Association Board Needs Proper D&O Coverage

Serving on the board of a condominium association is no small task. Board members are responsible for making financial and operational decisions that affect not only the property but also every resident who calls the community home.

Landscaping, maintenance, alarm systems, insurance purchases, and even emergency repairs—all fall under the board’s oversight. Most condo boards are made up of volunteers, often homeowners themselves, who step up to help their community. But here’s the challenge: even the most well-intentioned board members can make decisions that don’t go as planned. That’s where Directors and Officers (D&O) liability coverage becomes essential.

D&O coverage protects the board against claims that arise from decisions made in good faith, even if those decisions ultimately prove to be incorrect. Without it, individual board members could face personal liability.

The Unique Risks of Condo Boards

Condo associations, like businesses, need to maintain reserves for emergencies. Whether it’s a broken HVAC unit, storm damage, or a fire, the association needs money available to respond quickly. However, when an unexpected event strains the budget, difficult decisions inevitably follow.

Here are some common scenarios:

• Levying assessments: When major repairs are needed, boards may ask residents for additional funds. While necessary, these assessments are often unpopular and can lead to accusations of mismanagement or misuse of funds.
• Investing reserves: Boards may decide to invest association funds to grow reserves. But if the investment underperforms, residents could allege poor judgment or financial mismanagement.
• Delaying repairs: To avoid large assessments, a board might postpone a project, hoping issues won’t worsen. If the delay causes more damage, residents could claim negligence.

Each of these situations could spark lawsuits or claims against the board or individual members. D&O coverage exists to step in when those claims arise, protecting volunteers from bearing the financial burden of their decisions.

What D&O Coverage Protects

While you should always read your insurance policy for specifics, D&O liability insurance typically provides coverage for claims that board members:

• Misused association funds.
• Made poor investment decisions.
• Failed to act on a known issue in a timely manner.
• Breached their fiduciary duty to the association and its members.

In other words, it protects decision-makers from the very real possibility that not everyone will agree with the board’s financial or operational choices. Without this coverage, board members’ personal assets could be at risk.

The Challenges with Condo Association D&O Policies

A recent article published in Insurance Journal reinforces two critical points condo associations should understand about D&O policies:

1. Every Policy Is Different: Unlike homeowners or auto insurance, D&O policies don’t follow a universal standard. Exclusions and limitations vary widely from insurer to insurer. Many volunteer board members—who aren’t insurance professionals—may not realize the gaps in coverage until a claim arises.
2. Cutting Coverage Creates More Risk: When budgets are tight, some boards may consider reducing or eliminating insurance policies…including D&O coverage. Ironically, that very decision could trigger a D&O claim. Worse, without coverage, board members would face the costs of defending themselves out of pocket.

Best Practices for Condo Boards

To protect both the association and individual volunteers, condo boards should:

1. Carry D&O Coverage: Ensure your association has an active D&O policy in place. Review it annually with a trusted advisor.
2. Understand the Policy: Know what’s covered, what’s excluded, and where potential gaps may exist. Don’t assume all policies are the same.
3. Maintain Transparency: Communicate clearly with residents about major financial decisions. Even when residents don’t agree, transparency can reduce conflict.
4. Plan for Emergencies: Build reserves so that the board is less likely to rely on unpopular assessments or risky investments.
5. Work With Experts: When making complex decisions about repairs, investments, or insurance, lean on qualified professionals who can help guide the board responsibly.

Moving Forward

Serving on a condo association board is a significant responsibility that comes with inherent risks. Even when decisions are made with the best intentions, disagreements and claims can follow.

D&O coverage exists to protect volunteer board members from personal liability when tough decisions lead to disputes. Without it, board members could be left financially vulnerable. If you’re a board member or condo association owner, now is the time to review your D&O policy.

Not sure if your condo board’s D&O coverage is sufficient? Connect with our team to review your policy, identify gaps, and ensure volunteer board members are properly protected.