North Atlantic fisher. High wire trapeze artist. The guy who climbs really tall towers to change the little red blinking lights at the top when they burn out. When it comes to dangerous or risky gigs, these are some of the first jobs that come to mind. That said, we’ve got another one to add to the list: condo board member.
That’s right, condo board member! While this voluntary position might at first seem a little out of place when compared to these other professions, there are very real inherent risks that a person accepts when stepping into this sort of role. Being a condo board member may not demand that you put life and limb on the line like these other occupations, but it does mean putting oneself out there in terms of making decisions and wielding authority that could result in potential legal action if a tenant or group of residents within the condo building decides things aren’t happening the way they feel they should.
That said, it’s not as if there’s zero recourse to protect individuals volunteering to be condo board members, or else no one would sign up for the job! Directors and officers liability insurance exists for that reason, and we’re here today to talk about the ins and outs of this helpful, reassuring coverage.
The Low-Down on D&O Coverage
Directors and officer’s liability insurance (or D&O insurance for short) is a specific sort of coverage that is there to protect volunteer boards and board members in the event that their decisions or practices are challenged in court by one or more members of the community they serve. The specificities of D&O insurance can vary depending on local legislation, but generally, this coverage protects board members from being personally liable in excess of the condo corporation’s extant insurance coverage for any actions taken or decisions made provided that:
- The board member was acting within the scope of her duties.
- The board member was acting in good faith.
- The board member was acting in a way that she believed was in the best interest of the condo corporation.
- The board member was acting with such care as a reasonable individual might be expected to employ in similar circumstances.
- The board member was not willfully or grossly negligent.
- The board had an insurance policy in place at the time the act in question played out and when the claim was made.
So, What Does D&O Insurance Actually Cover, Then?
Provided your board operates on the up-and-up, does its due diligence, and follows the stipulations we’ve bullet-pointed above, D&O insurance will protect boards and board members in the event that they end up facing a lawsuit for alleged wrongdoing within the scope of their position and authority. This could be the result of an owner looking to second-guess the board’s actions and decisions on a controversial topic; it could be a challenge based on the board’s financial management and how it’s spending the condo corporation’s money; it could be because a board member’s decisions has resulted in property damage or lower property values; or, in the worst-case scenario, it could be because the board’s action (or inaction) has allegedly resulted in the personal injury or death of a condo community member.
In all these instances, D&O insurance will provide help to board members by covering the cost of legal defense, sustaining financial damages that board members might incur, and even handling the costs that result from these oftentimes long and drawn-out investigatory proceedings.
That said, D&O insurance isn’t an automatic get-out-of-jail-free card. If you or your board are determined to be engaged in fraud, illegal remuneration, deliberate non-compliancy, or are facing a lawsuit pending from before your coverage began, you’ll be on your own – D&O insurance won’t help you out in any of these sorts of situations.
Our Board Likes to Live Dangerously. Do We Really Need D&O Insurance?
This is a question we get frequently, and without exception, the answer is always a loud and resounding YES. Yes, you absolutely need D&O insurance. Even if your board is the most upstanding, diligent, attentive, responsible group of individuals to ever head up a condo corporation, you unfortunately can’t account for that one curmudgeonly individual in 2A who decides that allowing dogs off-leash in the common area is a bridge too far and demands legal action. No matter how unimpeachable your board’s actions might be, being sued is a costly affair, and hiring legal defense even for a winning case can be an expensive proposition. Further, many condo corporations out there actually require specific amounts of D&O coverage for boards and members (for precisely the reasons we just ran through), so be sure to consult your condo community’s bylaws – you might find that the question is less “Do I need D&O insurance?” and more “How much D&O insurance do I need?”
Now, the last thing we want to do with this article is paint the responsibility of being a condo board member with sweeping brushstrokes of doom and gloom. Being a part of our condo’s board can be a thoroughly rewarding experience, but it’s important that if you do decide to sign up for the job that the board take steps to protect all board members from any potential trouble, ensuring you’re all properly covered with a D&O policy. Not only will this coverage keep you safe in the event of a lawsuit, but it will provide you peace-of-mind as you carry out our board duties – especially in the event of needing to make significant, impactful decisions throughout the course of your tenure.
Do you still have additional questions about D&O insurance coverage? Don’t worry, it can be a lot to wrap your mind around. Drop us a line at Condo Management Edmonton, and we’ll be happy to clear up any confusion you might still be feeling around the subject today!