D&O policy canceled - how rare is that?

RogerJ1 (Texas)
Posts: 550

Posted:

A small POA likely* had its D&O policy canceled. How rare is that? And if an insurance company actually cancel and rescinded a D&O policy, how hard would it be to get a new policy from another carrier? I assume the new carrier would ask why they lost coverage and that would paint a risky situation in issuing a new policy??

* Facts: in October 2023, in the second of only two board meeting in the whole year of 2023, the Board stated that it no longer has a D&O policy going back to May or so. When asked why by a member, a director, stumbling for words that did not add up, made the excuse that after the management company left, for 2nd time after it came back after it initially left, the insurance company arranged by the management company left too. The management company left toward the end of 2022, so the timing does not really make especially since per the Association financial statement the D&O policy premium was paid in April of 2023 for an amount consistent with a year's coverage. When the director gave that does-not-add-up excuse, he stuttered, changing words mid sentence, and that is not his normal speech pattern.

Today, the Board finally released financial statements past September 2023 which was the latest released until today. The released statements go through November 2023, and as of November 30, 2023, insurance expense had not changed since April, so I assume they still do not have a D&O policy.

Also, today, I found a detailed line item list of a private attorney's bill, filed in public court records in a non-association libel suit involving one of the board members and another member in the community. The basis of that lawsuit is a matter outside that director's role on the board, and it is primarily against her husband, who is not even on the board. In that line item attorney bill (again a private attorney not the Association's), the attorney indicates topic and time she spent on the task for each line item. There are several line item mentions of her analyzing the Board's D&O coverage, corresponding with the Association's D&O insurance company about a claim, etc. The last line item dealing with the D&O insurance was requesting cost sharing. All those D&O related line items were dated in May and June of 2023, about the time that the Board said the old policy went away that per April Financial statements was paid for through March 2024.

Adding that all up, my hunch is the Board tried to make a claim for a suit against one of the director unrelated to the Association, the D&O carrier of course would have said no to that, and likely turned around and canceled the policy because of the risk of such a dysfunctional board. By the way, I was at hearing when the same private attorney was motioning for the libel case to be dismissed, and everything she was arguing was about how badly the HOA is run even though her client is a director on its board. Finally, the judge stopped the attorney to say, "there is no reason for to keep belaboring about the disarray of this HOA. It is highly dysfunctional, that is without question, but this case has nothing to do with the HOA." He then ruled against here motion to dismiss the case.

LetA (Nevada)
Posts: 2,679

Posted:

That is odd and rare. Perhaps the risk is too high to continue the policy at its current capacity without skyrocketing the premiums.
It might be time for those problem board members to resign and let new leadership take over.
In order to get a new D&O policy you will have to prove to the insurance carrier by, new board members and hiring
a new management company.

Just a few thoughts, there could be more reasons.

RogerJ1 (Texas)
Posts: 550

Posted:

Quote:

Posted By LetA on 02/15/2024 8:34 PM
That is odd and rare. Perhaps the risk is too high to continue the policy at its current capacity without skyrocketing the premiums.
It might be time for those problem board members to resign and let new leadership take over.
In order to get a new D&O policy you will have to prove to the insurance carrier by, new board members and hiring
a new management company.

Just a few thoughts, there could be more reasons.

I suspect the association is on its last legs. It should be welcomed news actually, because it is small subdivision, and the tracts are fairly large, 1.5 to 4 acres each. Surrounding land, right next to the subdivision, is being commercially developed at a fast rate and that land is selling for $500K to $700K per acre depending on how close the land is the major road next to the subdivision. Even the small. farther from the road lots would likely receive more than their house and land are worth now if the restrictions went away. Per the timing is a boon.

DeanJ
Posts: 1,786

Posted:

Quote:

Posted By RogerJ1 on 02/15/2024 8:25 PM
A small POA likely* had its D&O policy canceled. How rare is that? And if an insurance company actually cancel and rescinded a D&O policy, how hard would it be to get a new policy from another carrier? I assume the new carrier would ask why they lost coverage and that would paint a risky situation in issuing a new policy??

* Facts: in October 2023, in the second of only two board meeting in the whole year of 2023, the Board stated that it no longer has a D&O policy going back to May or so. When asked why by a member, a director, stumbling for words that did not add up, made the excuse that after the management company left, for 2nd time after it came back after it initially left, the insurance company arranged by the management company left too. The management company left toward the end of 2022, so the timing does not really make especially since per the Association financial statement the D&O policy premium was paid in April of 2023 for an amount consistent with a year's coverage. When the director gave that does-not-add-up excuse, he stuttered, changing words mid sentence, and that is not his normal speech pattern.

Today, the Board finally released financial statements past September 2023 which was the latest released until today. The released statements go through November 2023, and as of November 30, 2023, insurance expense had not changed since April, so I assume they still do not have a D&O policy.

Also, today, I found a detailed line item list of a private attorney's bill, filed in public court records in a non-association libel suit involving one of the board members and another member in the community. The basis of that lawsuit is a matter outside that director's role on the board, and it is primarily against her husband, who is not even on the board. In that line item attorney bill (again a private attorney not the Association's), the attorney indicates topic and time she spent on the task for each line item. There are several line item mentions of her analyzing the Board's D&O coverage, corresponding with the Association's D&O insurance company about a claim, etc. The last line item dealing with the D&O insurance was requesting cost sharing. All those D&O related line items were dated in May and June of 2023, about the time that the Board said the old policy went away that per April Financial statements was paid for through March 2024.

Adding that all up, my hunch is the Board tried to make a claim for a suit against one of the director unrelated to the Association, the D&O carrier of course would have said no to that, and likely turned around and canceled the policy because of the risk of such a dysfunctional board. By the way, I was at hearing when the same private attorney was motioning for the libel case to be dismissed, and everything she was arguing was about how badly the HOA is run even though her client is a director on its board. Finally, the judge stopped the attorney to say, "there is no reason for to keep belaboring about the disarray of this HOA. It is highly dysfunctional, that is without question, but this case has nothing to do with the HOA." He then ruled against here motion to dismiss the case.

What attorney files in public records a detailed invoice so a member of the public can read?

CathyA3 (Ohio)
Posts: 6,299

Posted:

Quote:

Posted By DeanJ on 02/15/2024 10:40 PM

Posted By RogerJ1 on 02/15/2024 8:25 PM
A small POA likely* had its D&O policy canceled. How rare is that? And if an insurance company actually cancel and rescinded a D&O policy, how hard would it be to get a new policy from another carrier? I assume the new carrier would ask why they lost coverage and that would paint a risky situation in issuing a new policy??

* Facts: in October 2023, in the second of only two board meeting in the whole year of 2023, the Board stated that it no longer has a D&O policy going back to May or so. When asked why by a member, a director, stumbling for words that did not add up, made the excuse that after the management company left, for 2nd time after it came back after it initially left, the insurance company arranged by the management company left too. The management company left toward the end of 2022, so the timing does not really make especially since per the Association financial statement the D&O policy premium was paid in April of 2023 for an amount consistent with a year's coverage. When the director gave that does-not-add-up excuse, he stuttered, changing words mid sentence, and that is not his normal speech pattern.

Today, the Board finally released financial statements past September 2023 which was the latest released until today. The released statements go through November 2023, and as of November 30, 2023, insurance expense had not changed since April, so I assume they still do not have a D&O policy.

Also, today, I found a detailed line item list of a private attorney's bill, filed in public court records in a non-association libel suit involving one of the board members and another member in the community. The basis of that lawsuit is a matter outside that director's role on the board, and it is primarily against her husband, who is not even on the board. In that line item attorney bill (again a private attorney not the Association's), the attorney indicates topic and time she spent on the task for each line item. There are several line item mentions of her analyzing the Board's D&O coverage, corresponding with the Association's D&O insurance company about a claim, etc. The last line item dealing with the D&O insurance was requesting cost sharing. All those D&O related line items were dated in May and June of 2023, about the time that the Board said the old policy went away that per April Financial statements was paid for through March 2024.

Adding that all up, my hunch is the Board tried to make a claim for a suit against one of the director unrelated to the Association, the D&O carrier of course would have said no to that, and likely turned around and canceled the policy because of the risk of such a dysfunctional board. By the way, I was at hearing when the same private attorney was motioning for the libel case to be dismissed, and everything she was arguing was about how badly the HOA is run even though her client is a director on its board. Finally, the judge stopped the attorney to say, "there is no reason for to keep belaboring about the disarray of this HOA. It is highly dysfunctional, that is without question, but this case has nothing to do with the HOA." He then ruled against here motion to dismiss the case.

What attorney files in public records a detailed invoice so a member of the public can read?

If it was an issue in the litigation, then it could legitimately be made public along with all of the other filings. Things that need to be kept confidential are filed under seal, and there will be a record that this happened. Not to say that attorneys don't occasionally do dumb things...

And anyone who serves on the board without D&O insurance isn't thinking clearly because they're putting their personal assets at risk. No volunteer job is worth that.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I strongly suspect your HOA board leaned into thinking they were covered by the D&O insurance due to the lawsuit threat. They probably used it or atleast tried very hard to make it apply. That being the case, they will drop your D&O insurance if a claim is made to it. I am not sure why people think that if you make a claim on your insurance that the insurance company isn't going to drop you after. That isn't unusual for them to do so. Matter of fact think it's kind of normal for them to drop after a claim in many cases.

Here in Alabama a few years ago we had a swath of tornadoes. There was so much damage from them, one of the big insurance companies dropped homeowner's coverages. They no longer cover homeowner's insurance or tornado claims. It's time to go shopping for a new insurance company or face paying higher rates. Also the HOA board should have been more forthcoming about the situation. Not necessarily the details but that there was a lawsuit situation going on. You were ALL being sued after all.

Former HOA President

RogerJ1 (Texas)
Posts: 550

Posted:

Quote:

Posted By DeanJ on 02/15/2024 10:40 PM

What attorney files in public records a detailed invoice so a member of the public can read?

She had to do so. She was requesting that her fees be covered by the other party, and therefore had to support her fee, so she submitted a detail invoice of her charges as part of her motion.

RogerJ1 (Texas)
Posts: 550

Posted:

Quote:

Posted By MelissaP1 on 02/16/2024 5:04 AM
I strongly suspect your HOA board leaned into thinking they were covered by the D&O insurance due to the lawsuit threat. They probably used it or atleast tried very hard to make it apply. That being the case, they will drop your D&O insurance if a claim is made to it. I am not sure why people think that if you make a claim on your insurance that the insurance company isn't going to drop you after. That isn't unusual for them to do so. Matter of fact think it's kind of normal for them to drop after a claim in many cases.

Here in Alabama a few years ago we had a swath of tornadoes. There was so much damage from them, one of the big insurance companies dropped homeowner's coverages. They no longer cover homeowner's insurance or tornado claims. It's time to go shopping for a new insurance company or face paying higher rates. Also the HOA board should have been more forthcoming about the situation. Not necessarily the details but that there was a lawsuit situation going on. You were ALL being sued after all.

And it appears the Board lied in a Board meeting about it, and in the minutes to that meeting. In an October 2023 meeting, its last meeting, the Board stated that it not longer had D&O insurance because the umbrella policy of the management company went away when the management company went away. That is not possible with I learned yesterday.

Time line:

Umbrella policy would have been gone sometime between October 2022 and January 2023. The management company left as a management company in October or November of 2022, and agree to stay as a accountant but that did not last long, and it left in that capacity in January 2023. So even given the situation the benefit of the doubt, January 2023 is the latest that umbrella policy would have been in effect.

In May and June of 2023 the outside attorney reviewed the "D&O policy" for coverage, and corresponded with the D&O insurance company in making a claim and in cost sharing. So a D&O policy was in place at that time, ~6 months after the Management company's umbrella policy would be gone, plus as detailed as the invoice was, I doubt the attorney would have called the policy D&O if it was a management company umbrella policy.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I am confused. The MC is a paid contractor to the HOA. The HOA should have its own insurance. The MC would have theirs.

Did the situation involve the MC? It seems more to the story. Was the MC part of the lawsuit or involvement with the libel? That would make more sense here if the MC also was involved.

Former HOA President

LoriM15 (Florida)
Posts: 1,009

Posted:

Those directors are crazy if they are serving on a board without D&O insurance. They must not have much to lose personally if they are willing to put it at risk just to be on an HOA board.

Our D&O insurance is part of our insurance package and when we got non-renewed for too many claims (all slip and falls, nothing substantive) the whole package got cancelled.

I think they are clearly stretching the truth about the insurance going away with the old management company. Clearly, they got cancelled, at least the D&O part, because of the claims.

What a mess.

ElleN (Idaho)
Posts: 4,420

Posted:

The main question I would have is: Do the covenants require that the HOA have D&O insurance?

I see a BO 22 statutory requirement that the HOA indemnify all officers (not directors) for officer "omissions." Without D&O insurance, for one this HOA can bill all owners for an omission by a HOA officer that yields litigation et cetera.

RogerJ1 (Texas)
Posts: 550

Posted:

Quote:

Posted By MelissaP1 on 02/16/2024 6:30 AM
I am confused. The MC is a paid contractor to the HOA. The HOA should have its own insurance. The MC would have theirs.

Did the situation involve the MC? It seems more to the story. Was the MC part of the lawsuit or involvement with the libel? That would make more sense here if the MC also was involved.

No to all those questions. I suspect the director stating it was the management company umbrella was either outright lying or bending the truth.

KerryL1 (California)
Posts: 14,550

Posted:

Does Texas Corps Code, by chance, require D&O insurance?

RogerJ1 (Texas)
Posts: 550

Posted:

Quote:

Posted By KerryL1 on 02/16/2024 12:55 PM
Does Texas Corps Code, by chance, require D&O insurance?

Via a quick search I cannot find anything, and with the very low regulation aspect of Texas, I doubt it.

RogerJ1 (Texas)
Posts: 550

Posted:

Quote:

Posted By ElleN on 02/16/2024 7:33 AM
The main question I would have is: Do the covenants require that the HOA have D&O insurance?

I see a BO 22 statutory requirement that the HOA indemnify all officers (not directors) for officer "omissions." Without D&O insurance, for one this HOA can bill all owners for an omission by a HOA officer that yields litigation et cetera.

No. Nothing in the bylaws on insurance at all. I doubt it would be in an association's restrictions but I checked there too. Nada.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Our Covenants say:

and, if reasonably available, directors' and officers' liability insurance.

Of course, I would never serve on a BOD that did not have it.

CathyA3 (Ohio)
Posts: 6,299

Posted:

Our CC&Rs require it. We''re condos, though.

One good reason to require it is that many communities already have a hard time getting volunteers to serve on the board. The absence of D&O would weed out all the potential volunteers who understand what this means, leaving you with those who don't understand the risks they're taking. Do you really want to select for the clueless folks?

A bigger reason is the risk to the association if a disgruntled homeowner sues the HOA because they're mad over a board decision. If the board is being sued for actions they've taken in the course of their duties, would it not fall onto the HOA to pay for the legal costs of defending them? Without insurance??

I'm really surprised that any association allows this insurance to be optional. I wonder what was in the minds of the folks who drafted the governing documents.

RogerJ1 (Texas)
Posts: 550

Posted:

Quote:

Posted By CathyA3 on 02/16/2024 1:51 PM
Our CC&Rs require it. We''re condos, though.

I'm really surprised that any association allows this insurance to be optional. I wonder what was in the minds of the folks who drafted the governing documents.

50 lot POA with no assets, other than cash. It had D&O insurance consistently the last 20 or 30 years. There is just no requirement to have it, as far as I can find.

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By RogerJ1 on 02/16/2024 1:31 PM

Posted By ElleN on 02/16/2024 7:33 AM
The main question I would have is: Do the covenants require that the HOA have D&O insurance? [snippage]

No. Nothing in the bylaws on insurance at all. I doubt it would be in an association's restrictions but I checked there too. Nada.

If I lived at this HOA I would keep in mind that the federal Volunteer Immunity act 'grants those who perform volunteer work for nonprofit organizations or a governmental entity immunity from civil liability for injuries they cause by their acts of negligence while volunteering.' Meaning if a director at this HOA does some harm while volunteering as a director, a court cannot hold the director liable in a court of law.

I imagine any owner that was harmed would go after the corporation as a whole. Meaning all owners would have to pay for any harm a director perpetrated while volunteering for the HOA.

On the other hand, insurance is so expensive that maybe it is worth the risk of not having insurance.

KerryL1 (California)
Posts: 14,550

Posted:

To try to stick with the O.P: D&O insurance in general (v. personal injury liability issues), D&O insurance is required in CA HOAs.

https://www.davis-stirling.com/HOME/R/Required-Insurance-Levels
"To avoid personal liability in excess of the association's insurance limits, boards must maintain at least minimum levels of D&O Insurance for associations with 100 or fewer separate interests and for those with more than 100 (see Civ. Code §5800(a)(4)"

So, even if not required in Texas, it may be w required in other states.

KerryL1 (California)
Posts: 14,550

Posted:

To try to stick with the O.P: D&O insurance in general (v. personal injury liability issues), D&O insurance is required in CA HOAs. I never would've served on my HOA Board without it.

https://www.davis-stirling.com/HOME/R/Required-Insurance-Levels
"To avoid personal liability in excess of the association's insurance limits, boards must maintain at least minimum levels of D&O Insurance for associations with 100 or fewer separate interests and for those with more than 100 (see Civ. Code §5800(a)(4)"

So, even if not required in Texas, it may be required in other states.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Want to make sure we are talking D&O insurance that is for board members protection. The insurance set up to protect a board member personal assets by doing HOA work. There is different insurance for the property itself.

That underwriter company is normal. They are one of the big underwriters for insurance. It's a bit confusing when you see that name. It usually not going to be reading "Progressive". It will be like "Lloyds of London Underwriters" when a claim is made.

Former HOA President

RogerJ1 (Texas)
Posts: 550

Posted:

Quote:

Posted By MelissaP1 on 02/16/2024 3:44 PM
Want to make sure we are talking D&O insurance that is for board members protection. The insurance set up to protect a board member personal assets by doing HOA work. There is different insurance for the property itself.

That underwriter company is normal. They are one of the big underwriters for insurance. It's a bit confusing when you see that name. It usually not going to be reading "Progressive". It will be like "Lloyds of London Underwriters" when a claim is made.

I understand the second point, I was just wondering, since the company might specialize that that specific underwriter might indicate if it was a claim on a home owner policy or Board D&O.

Based on the attorney's bill, I think the defendants first responded on their own, including a pro-se filing, then they got their homeowners insurance to provide coverage, at least initially, the attorney was likely assigned from that - she is a partner in a medium sized firm, by medium sized it has offices in all major Texas cities and a few out of state cities, and her specialty is insurance law and manage their insurance policy so I think her focus is cultivating insurance claim referrals but that is only my guess based on this case and that description for her on the firm's site. I heard rumors that the defendants were using a homeowner policy, and supposedly a few neighborhood people were called and question by homeowner policy adjustor. I think they then tried to get the D&O policy to cover it or share in the cost.

CathyA3 (Ohio)
Posts: 6,299

Posted:

Quote:

Posted By RogerJ1 on 02/16/2024 2:07 PM

Posted By CathyA3 on 02/16/2024 1:51 PM
Our CC&Rs require it. We''re condos, though.

I'm really surprised that any association allows this insurance to be optional. I wonder what was in the minds of the folks who drafted the governing documents.

50 lot POA with no assets, other than cash. It had D&O insurance consistently the last 20 or 30 years. There is just no requirement to have it, as far as I can find.

Then people would go after the cash followed by owners' personal assets to satisfy a judgement against the HOA. It's one of the unacknowledged risks of buying in an HOA and why people living in HOAs that have stopped electing boards and whatnot are living in a fool's paradise. (It occurs to me that there's an untapped resource for the criminally minded here... Best to stick to condos since they will have other assets... Hmmmm....

)

Anyway, as others have said, I would never serve on an HOA board without D&O insurance. I'm already donating my expertise and free time (the latter being a dwindling asset at my age), and I needto spend my own money to beef up my own insurance on top of it? Really? This sort of thing just selects for board members who don't understand this. And cluelessness is not a desirable trait in board members.

RogerJ1 (Texas)
Posts: 550

Posted:

Quote:

Posted By JohnC46 on 02/16/2024 1:36 PM
Our Covenants say:

and, if reasonably available, directors' and officers' liability insurance.

Of course, I would never serve on a BOD that did not have it.

I read some articles on HOAs and D&O insurance, such as: https://www.hoainsurance.com/2017/directors-and-officers-insurance-liability-threatens-association-boards/ that indicate most HO D&O policies are inadequate, and to me, those inadequate policy might not be much better than nothing. One big gotcha is that unless a specialist carrier who would even offer it, and the Full Prior Acts Coverage ridder/amendment was added, HOA D&O policies will only cover current claims. Since many problems do not even come to light later, and litigation takes time, I would think many suits facing HOAs, where D&O insurance would be needed, would be from snafus in the past, which based on what I read, many HOA D&O policies would not cover. An HOA would have to stay with the same carrier over an extedned period of time, or make sure any replacement policy fully covered past events, or they would be down a creek when it was needed.

TimB4 (Tennessee)
Posts: 21,062

Posted:

Most governing documents and most corporate statutes specify that the Association indemdifies the Directors and Officers.

If an Association does not have D&O insurance, they would have to foot the bill themselves (special assessment perhaps).

D&O, typically also covers committee members.

RogerJ1 (Texas)
Posts: 550

Posted:

Anyway, in my view, this POA's board should have put out a statement disavowing the potential defamation act done by the board member and mainly her spouse that was done on the couple's own (private emails to all members and related social media posts) so not directly related to a POA action, but instead this board embraced the suit, giving affidavits as officers of the board on behalf of the defendants, and letting a private attorney explore making a claim on the board's D&O policy. They may have put the association at risk to be joined into the lawsuit, and by wrecking their own D&O policy, increased their own personal liability. I.e., to me it seems they did the utter opposite of what a prudent board would have done.