Homeowner Associations » Professional Liability

What Does a Directors & Officers Policy Cover?

Defense Costs: The major cost in D&O claims are the attorney’s fees incurred by the insurance company to defend against the lawsuit. It is important to know if the cost to defend lies within or outside the policy limits. If the cost of defense is “within” the policy limits, then as the carrier pays the attorney fees (the money to pay any resulting judgment), the policy limits are reduced. This is undesirable. Ideally, the defense costs should pay “in addition” or “outside” the policy limits, leaving the full limit to pay any resulting judgment.

As with all liability policies, D&O policies do not cover illegal acts.

This means, that if a board member or an individual is found guilty of intentional discrimination or harassment, the insurer that defended the lawsuit will not pay damages awarded by the court and will likely seek reimbursement for the cost of the defense.

Policies will limit a claim to those proceedings or demands made against a board member in his or her capacity as a member of the association’s governing body. Actions taken while not acting in the capacity of a board member will not be covered.

Claims Made Basis: While the language within each D&O policy will vary widely, all are written on a “claims-made” basis. This means that the policy only provides coverage for claims made during the policy period. In addition, usually the insured must report the claim to the insurer during the policy period or within a reasonable amount of time.


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