Georgia -> Cannot get D&O insurance

Started by PatrickH7 • 7 replies • 370 views

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PatrickH7 (Georgia)
Posts: 5

Posted:

We just moved into a small, for now, 4 unit townhome that is still under the Declarant as the development is still being built. I've joined the board as a committee member as I get along with both the owners and Declarant. There are/were issues between the Declarant and the other owners to the point that when we went to get quotes for Director and Officer insurance and we were asked if there were threats of a lawsuit the Declarant truthfully answered yes and we were declined coverage for the upcoming year. So far 3 other insurers have declined coverage and I suspect that if we do find insurance the cost will be extremely high. Since the developer is being cautious, I really don't expect the other units to be built this year. What options might we have? Since we've in things have seem to have settled down.
Thank you

JohnC46 (South Carolina)
Posts: 14,265

Posted:

I believe BOD Members could get Personal Liability Policies for their protection. Have the association reimburse the BOD Members.

CathyA3 (Ohio)
Posts: 6,299

Posted:

I agree with John about getting your own insurance coverage if you intend to stay involved with this. However, in my opinion...

* No one should ever put their personal assets at risk for an unpaid volunteer gig. If you have to put in a claim on your own insurance, then your rates will rise. In your shoes, I'd walk away. (And are you on the board or just on a committee? D&O insurance protects the decision makers - committee members serve at the pleasure of the board but don't have any decision-making authority themselves.)

* I doubt that you could be reimbursed if you do buy your own insurance. HOA policies protect the assets of the corporation. Your insurance protects your personal assets, which is not a legitimate HOA expense.

* It's likely that all parties involved are behaving foolishly. Just how serious are these "issues"? Homeowners need to understand that when the developer is in control, he's in control - homeowners won't have things their way until he turns over control to them. It's the nature of the beast and he has no obligation to do things the way they want. They can sue their little feeties off, but the only thing that will accomplish is blowing through a lot of money. Second, disagreements happen all the time in HOAs and they usually don't result in lawsuits. Anybody can sue anyone else at any time for any reason, but that doesn't mean that there is a threat of impending litigation.

* If word of this nonsense were to get out - and I'd be willing to bet at least some parties are running their mouths on social media - this will discourage sales. That hurts everyone.

* If I were in your shoes, I'd be putting the whole mess in my rear view mirror.

I wish I had a more optimistic answer.

CathyA3 (Ohio)
Posts: 6,299

Posted:

This is just an FYI:

It's common practice (at least in my area) for developers to create new LLCs for each new project they take on. This means if the thing blows up in people's faces, the developer's loss is limited to the money he put into that particular project. Homeowners, on the other hand, generally don't buy homes as LLCs unless they're planning to rent out the property. This means that if things go really wrong, homeowners who own under their own names put their personal assets at risk.

This means that - in addition to having no legal obligation to do what homeowners want at this stage - the developer almost certainly has no financial incentive to do so either. He is firmly in the driver's seat unless something really odd is going on.

This is why I think that the homeowners who are fighting with the developer don't truly understand their position. Unfortunately most people who buy in HOAs don't understand the financial and legal implications. An ill-advised lawsuit can provide painful lessons, which is why cooler heads are needed.

PatrickH7 (Georgia)
Posts: 5

Posted:

You nailed it on the head. Both parties are being foolish. Since I'm in a non-decision making role, I'm not concerned about being sued. I am concerned my HOA fees are going to shoot through the roof though

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Patrick

As the Declarant is in control, you are in an advisory role thus not a Director nor Officer thus I do not see D&O Insurance applying to you. When the association gets turned over to owners and the BOD goes after D&O Insurance they can say they are not aware of any suits against the association so they should be able to easily purchase D&O.

PatrickH7 (Georgia)
Posts: 5

Posted:

Ahhh. Another incentive for the developer to finish! Thank you

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