D&O Insurance

Can you share what your D&O limits are? We are a community of 160 homes.

Two million for us. I also boosted my personal liability insurance when I was elected to the board.

I think this would be more money, and so incentive, for a litigious employee or HOA member to go after. I hope your personal insurance does not have a hammer clause. (A hammer clause allows an insurer to decide whether to pay off a complainant, prohibiting the insured from having any say in the decision.) For what it is worth and for the archives, upon being elected to the board, I discourage adding personal liability insurance. A judge is not going to hit a single director with damages or the opposing party's attorney fees.

A few scenarios:

HOA Member: Director Joe Smith defamed me! I am hiring an attorney and suing him and the HOA! Get out your pocketbooks.

Board: [silence]

HOA Member's Attorney: Dear Board and Director Smith, on March 5, 2020, Director Joe made remarks that were defamatory to my client. From the official Minutes, here they are:

-- Director Joe: A certain Member has been whistling at women and directing cat-calls to them as they walk by his patio. The women are uncomfortable about this.
-- Director Jean: Let's save this for executive session.
[All Directors agree.]

My client is a prominent leader in the Boy Scouts. He demands $75,000 for loss of reputation. If the HOA does not pay this by May 15, my client will be forced to file suit. Please inform your insurers.

Sincerely,

Judy Jones
Attorney at Law

HOA Attorney: Dear HOA Member's Attorney, the insurers have been informed. Sincerely, HOA Attorney

Behind the scenes:
Scenario 1: All insurance companies informed. Joe Smith's insurer consults with the HOA insurer. Both insurers have hammer clauses. The claims adjusters offer the HOA Member $8,000 to make the nuisance go away. The HOA Member's Attorney says no way but reduces the demand to $70,000. The claims adjusters kibbutz further. They offer $15,000. The dispute is settled. Director Joe's insurance premiums go up. The HOA's insurance premiums go up.

Scenario 2: No hammer clauses. The two insurers want to settle but the HOA and Director Joe says nope; give us specialized attorneys. The specialized attorneys write a letter informing the HOA Members attorney that her client has no case for xyz reasons. This plods on for a year or so. The HOA member never files suit. Why? Because attorney Judy Jones knows it is a losing case and does not want to get in trouble or lose reputation with the judge.

An insurance contract that has a hammer clause allows the insurance company to unilaterally make the decision to settle or not. As interested, see https://www.investopedia.com/terms/h/hammer-clause.asp. I suppose it often saves the insurance company money. This is potentially at the cost of the client's reputation. I would expect insurance contracts with a hammer clause result in lower insurance premiums than insurance contracts that have no hammer clause.

The advertisement you cited is using the word "hammer" in a different way.

Posting for the archives. I respect CathyA3's position but do not quite agree with it. What would make a lawsuit worthwhile for a potential plaintiff and/or her/his attorney? Off the top of my head, I believe the following are key to the thought process an attorney goes through in deciding whether to take a liability case:
1. Thorough documentation of the facts.
2. Concrete dollar figures for the harm done (meaning "damages"). In the case of defamation, this
is way harder than most laypeople think.
3. Law that supports the facts and says that damages are appropriate.
4. Either (a) an insurance policy that may yield a settlement or (b) net worth so large that a judge would not hesitate to force the defendant to pay some large amount.

Absent any one of these, I do not see an attorney filing a lawsuit for the proposed plaintiff.

What would make the threat of a lawsuit worthwhile for a potential plaintiff and/or her/his attorney?

A. A bit of documentation of the facts.

B. A bit of documentation of the harm done, quantified in dollar figures. In the case of defamation, the potential plaintiff need not even try to estimate the loss of income due to the effect of the defamation on his or her reputation.

C. Law that would support the facts (if they were well documented) and damages (if they were well documented) and says that, assuming massive documentation of the facts and damages, damages are appropriate.

D. Same as 4. above.

Hence the threshold for deciding to threaten a lawsuit (versus actually filing in court) is much lower. But it's only a threat. The potential plaintiff's attorney is expected to make numerous demands over many months before filing in court. Because the plaintiff's attorney knows judges expect this. It's why some 99% of disputes never go to court.

I propose that insurance companies with hammer clauses represent gold mines to attorneys looking for plaintiffs. The insurance company will just settle rather than pay its attorney to respond to the demand letters or risk a crazed plaintiff's attorney filing in court.

From real life: At my first HOA around 2012, a director was threatened with a lawsuit. The insurance company assigned him an attorney. The attorney agreed there was no case and the accuser would lose in court. Still, a month into the case, the attorney pressured the director to approve a settlement paid for by the insurance company. The attorney's lines were: 'This will all be behind you. You can forget about this and move on with your life.'

The director responded, "No. No settlement."

If the director had approved a settlement, then word would get out and the chances of more gold diggers coming out of the woodwork would rise.

The accuser never filed suit. Never got a cent. The insurance company paid the attorney a lot less than the proposed settlement.

I think the more insurance one has, the better the chances of being sued.I agree that where a HOA's conduct is egregious and doing significant harm, critics should post the criticism anonymously.