Bonding HOA Board Members

Our HOA is made up of 44 SF homes (extremely small) with no common areas other than a sign and entrance property. There are 5 board members one that thinks we should have insurance against being sued by any of the homeowners. Our dues are so small they come due yearly and since there isn't many expenses, the membership account has grown substantially in the past few years.
Let's face it, we live in a sue happy world and anyone can sue anyone else for any reason. The one board member does not want to be the position without insurance in case the board makes a decision that could spark a lawsuit such as restriction violations. Does anyone feel insurance for board members is necessary? Thanks for any replies.

Yes you should have D & O insurance. If each Director doesn't have this insurance and they make a big mistake then each Director can be sued personally. Do you want to be sued and lose your home and assets? No matter the cost you should have this coverage. Each Director should also be bonded. This coverage shouldn't be that expensive. Check it out with your insurance Agent.

Leaving aside most if not all of the CC&R's I've read over the years mandate the minimum insurance required, let's go with Larry's scenario. Directors can be sued personally whether they have insurance coverage or not. Insurance does not prevent lawsuits and may even encourage them. If the directors were carrying out their duties as would a reasonable person in a similar situation, they are not personally liable.

Now you're Joe Director and you have just been sued because Mark Homeowner doesn't like a decision the Board made. You can either pay hundreds if not thousands to defend your position (which will ultimately be proven you acted correctly) or you can use the D&O insurance to pay for your defense. I personally would NEVER serve on a Board without it.

Read your Documents. They may require the HOA to have a policy. We had a requirement of a 1 Million dollar policy minimum to be carried. Plus our contractors had to have the same requirement. A million dollar policy is the bare minimum of HOA insurance. It doesn't mean a million dollar payout either. Matter of fact ours only paid out 80K if you read the fine print. However, that meant that if a judgement was for 100K, the HOA would have to pay the 20K difference. A consideration for all the owners to consider.

I wouldn't volunteer without the insurance even if you believe your homeowner's insurance covers you. I believe you have to have an additional coverage added on your home insurance for this to be true. Which I wouldn't want to pay higher premiums out of my personal pocket to be on a voluntary board. Espcecially when the cost would be included in my dues. The cost would be divided equally amongst all members to pay.

If your concerned about cost your HOA can make payment arrangements with the insurance. We had to arrange paying the premium for 10 months out of the year. That way we could lower the monthly payment to about 2K a month. We had 107 owners so only a few dollars out of our entire dues went toward the premium.

We had a clubhouse, pool, and common areas to cover in addition to board members actions/liability. The insurance is often offered in a "Bundle" format which means you may get coverage for a company car that doesn't exist. However, what happens with that is if a board member was in an car accident while doing HOA business, the insurance would act like "Gap" insurance for that member. It would pay the difference of what the insurance did not pay between the two parties involved. Another consideration your board members may appreciate. Plus if your like us, we owned the house and lot but the HOA the property around the lot. Which means if a tree on the common property fell on a house, the HOA would be responsible for the cleanup of the debris and possible damage to fences/property.

No matter the size of your HOA, insurance is an important consideration. It's not only protecting it's board members but all the members too.

Foster,

We carry the following insurance:

Liability
Directors and Officers
Crime (acts as the fidelity bond for the Association)

I also would personally not serve on a board with Directors and Officers Coverage. Contrary to what Larry said who would you rather have cover your legal bills, yourself, your homeowners' insurance or the HOA insurance? I pick the HOA insurance everytime and twice on Sundays. As long as you are acting in good faith the HOA insurance will cover your legal bills if you get sued.

I doubt your homeowners policy would cover you, mine certainly wont cover me for actions not related to my property.