Directors & Officers Liability Insurance

We are a new HOA starting up. We are a community of 85 homes with a annual budget of around $24,000. On 5 March 09 we had our turn over meeting and the developer cut us lose. We started with $0 in the bank due the developers Management Company over charging us. Our question is the BOD liable for any loses? Is Directors & Officers Liability Insurance necessary? Can the BOD be sued for acting in good faith and within the by-laws and DC&R's?
If so how much of much should the Liability be for? Thanks

Robert,

Golly, do I feel for you. A new board starting off with no money in the bank because the declarant apparantly mismanaged the funds. The new board made up of h/o's is certainly not liable for the actions and misdeeds of the declarant while he was in control. I hope you're getting a new management company or are you going to try to self-manage. If you can get enough willing members to do the necessary work, it shouldn't be too hard a task with only 85 homes. Are they single-family homes or a condo comples. Single family homes are much easier to manage as there is no maint and upkeep for the assn to perform on the dwellings.

Is the BOD liable for any losses? Well, of course, the BOD is always liable, but it has to be proven you acted recklessly. As I stated above, the BOD is not liable for anything the declarant did. But, going forward, you will be liable for your actions. And, yes, it's prudent to have D&O coverage, in fact, it may even by required. Take good look at your bylaws for this info.

Can the board be sued for acting in good faith? Of course! The BOD can be sued for anything; but it has to be proven you violated your fiduciary duty to the assn. Courts use the business judgement rule when deciding this. This "rule" means if you acted as any other person would act in the same circumstances then you have not violated your fiduciary duty. When you knowingly act outside the law or your gov docs then you have violated your fiduciary resp. to the assn and can be held accountable and no amount of D&O ins will cover you. But, D&O ins is for your protection when you know you haven't done anything wrong but someone is claiming you have. As for the amount I believe it is based upon your annual budget and perhaps what amenities the assn has. An insurance agent would be better able to advise you on that.

Get the insurance! We are a self managed property with 76 lots. We currently spend just over $3000.00 per year on D&O and General Liability. Our POA was recently sued by a fellow property owner and we are not going to have to cover the expense as we are covered by our insurance policy. I can't even imagine what we would be going through without the insurance. We also started out with $0 in the bank when we took over our check book, but we were able to manage. Hopefully you all haven't already paid your 2009 dues. Good Luck! Get the insurance!

With such a small budget, your obligations must be minimal.

Can you explain exactly what the HOA is responsible for?

Of coursse you should have some kind of D/O inssurance, but no sense over-insuring yourselves.

Susan,

Over-insuring is a tough concept to sort out, though I'd say when in doubt, better to pay a few extra bucks for more than might someday be needed rather than skimp. Our HOA has a smaller annual budget than Robert's and about 1/4 the units, but as noted above, we carry $2-4M limits/$1K deductible in liability + D&O. We also have a fidelity bond for the BOD - $30K/$250 deductible. Annual premiums for all that are around $1K (4.5% of our budget). We have 30+ acres of common areas including 4 ponds. But if we had 3 acres of common areas and 1 (or no) ponds, we'd still carry those limits because all it takes is one catastrophic event to exhaust what one might have thought was reasonable coverage. As in:

A previous life in which I worked with a consortium of E&S carriers that wrote a retro policy for the (original) MGM-LV following the fire in its casino that led to 80-some deaths. One would have thought an operation of that magnitude would have carried adequate insurance, eh? Nope. Not by a long shot, hence the retro coverage (that being the rare bird of writing a policy AFTER a loss has occured and the damages can be somewhat estimated).