Most people do not realize the inherent risk involved when you sit on the board of directors for a community association. There are many responsibilities a director performs which can make you vulnerable to lawsuits alleging breach of contract, waste of corporate assets, and discrimination, just to name a few. As a board of director you enter into contracts, hire and fire people and spend association funds, all actions which mean Directors and Officers liability insurance is a must for anyone in this position.



How to Protect Community Association Board Members


As a board member, protection against these types of lawsuits is critical. A comprehensive Directors and Officers Liability Insurance policy is the protection
board members need to have. The D & O policy is considered to be one of the most important insurance coverages a community association can purchase. The majority of theDirectors and Officers Insurance policies on the market do not provide adequate coverage. For example many of the following situations are excluded under most Directors and Officers Insurance policies. One reason is that many of the allegations are considered non-monetary actions. They typically stem from actions involving interpretation of the governing documents, enforcement actions, and approval and non-approval of requests by members. This is why a comprehensive Directors and Officers policy is critical.


Enforcing the governing documents… Excluded by Most!

Boards frequently encounter trouble as they enforce the rules set forth in the association’s documents. Pet ownership, parking privileges and architectural modification account for many claims. A unit owner may maintain that his pet should be permitted as an accommodation to a disability from which he suffers. A disagreement can also exist over the definition of a pet. For example, is a pot-bellied pig a pet or a farm animal?


Foreclosure and Bankruptcy… Excluded by Most!

One of the fastest growing areas for claims is the wrongful foreclosure of individual units. This has caused a financial burden for many associations who are now being sued for breach of fiduciary duty for failure to maintain the property and mismanagement of funds. A current claim involves a bankruptcy alleging the board conspired with the property manager to defraud the association out of thousands of dollars.


Breach of contract… Excluded by Most!

One area of concern for association board members involves the allegation of breach of contract. Typically, this type of claim involves a subcontractor hired by the management company to do repair work on the building or common areas. Any disagreement over the work usually prompts the board to withhold payment. This can result in legal action against the board.


Employment issues… Excluded by Most!

Some community associations employ their own staff (even if it’s just one maintenance worker). Employment, even on a small scale, brings with it additional potential for litigation. Employment related claims, such as wrongful termination; sexual harassment and discrimination are becoming more commonplace for community associations. An award of $226,770 was paid to an employee who sued because she felt she was discriminated against when she applied for a new management position. She felt she didn’t get the position due to age and sex discrimination.


Reserve management… Excluded by Most!

The board is ultimately entrusted with managing the corporation’s capital and operating reserves, even when the task is delegated to a professional or to a committee within the organization. This is a complex undertaking that requires the board to recognize and plan for both short-term and long-term cash needs. As a result, mismanagement of associations’ funds is a large problem for community association board of directors.

Walk of Hope 2011

Posted: November 9, 2011 in Uncategorized

In honor of Breast Cancer Awareness Month, KDIS participated in the annual Walk of Hope

KDIS Crime Stats

Posted: October 31, 2011 in Uncategorized

It is called `sleep insurance` for a reason. Directors and Officers Liability insurance helps members of the board of directors of community associations sleep well at night, without having to worry that their personal assets are at risk due to a decision they made on behalf of the association. A claim can arise at any time, and without the protections afforded by Directors and Officers Liability insurance, board members might not have such peace of mind.

When addressing the challenges facing a community association it is vital to begin with a discussion of the idea of `Indemnification.` Most states require associations to `indemnify` board members for actions they make on behalf of associations. What does this mean? It means board members are going to be provided a defense if they are sued for any action they make on behalf of the association. In addition to state laws, the governing documents of the vast majority of community associations in the U.S. also require the association to `indemnify` their board members. Since `indemnification` is mandatory for either the state or the governing documents, the need for Directors and Officers insurance is vital.

The `Insured` in a Directors and Officers insurance policy is usually defined as the community association itself in its capacity as an entity and any subsidiary of the association. `Insured Persons` are commonly defined as those who act in the capacity of past, present, duly elected or appointed officers, directors, trustees, employees, volunteers, or committee members. Spouses of insured persons are also covered, which might surprise you. Often the property manager is also covered with the policy.

When you make a decision to join a community association board of directors you are basically volunteering your time and effort and assuming responsibility of decision making for the association. Board members are required to perform such tasks as interpreting, revising, and enforcing the association documents. These actions could lead to potential lawsuits alleging breach of contract, breach of fiduciary duty, discrimination, violation of employment laws, improper actions in dealing with other insureds and a variety of other prospective claims. Claims can demand monetary or non-monetary relief. A good Directors and Officers Liability policy will cover both monetary and non-monetary claims.

One way to avoid some of the pitfalls associated with community living is to hire professionals who focus in management services for the community association industry. Professional management of the association is essential when it comes to making wise decisions and when it comes to conforming to the association documents. A professional management company can also provide advice when it comes to the day to day decisions facing a community association (such as insurance). Several community associations employ their own staff these days and even if you have just one employee there is a potential for litigation. Wrongful termination, sexual harassment, and discrimination are very common claims in today`s world.

Community associations face an assortment of claims nowadays. Below are three types of claims commonly seen in the Community association world. Once you read about the following real-life claims and think about challenges your community association faces every day, it becomes clearer and clearer as to why you need Directors and Officers insurance.


Breach of Fiduciary Duty

Your community association holds an election to decide who will be appointedon next years` board of directors. Everything goes without a wrinkle until one month following the election at which time people start talking and one association member decides that the election was held improperly. That individual sues the association claiming that it was an improper election and they want the results of the election declared invalid and a new election held. This is a very common claim in the world of associations and one of the reasons Directors and Officers liability insurance is vital.



Insured vs. Insured


This type of claim is not covered in all D & O policies currently available. It is a typical, significant exposure challenging community associations. It would be a good idea to find out if this type of coverage is available in your policy.

In one association, a president received a letter from a unit owner demanding that the board `use all means available` to remedy improper actions of a specific board member and the association`s property manager.

The letter alleged that all board members were aware of suspicious actions by a specific named board member and the property manager. It was alleged that the actions of the board member and property manager did not serve the lawful and legitimate interests of the unit owners, including using association proceeds to cover personal debts and for other expenses that were not authorized by the housing association.

The unit owner demands that the housing association recover the allegedly misappropriated resources as well as recover fees. A suit is filed in the name of the association and for the benefit of the association. This is a classic example of an `insured vs. insured` claim. There are also many cases where board members sue other board members.

Many Directors and Officers insurance policies include an `insured vs. insured` exclusion. It is a smart decision to check with your insurance broker regarding this exclusion. The exclusion means that if someone makes a claim in the name of the association or on behalf of the association against any other insured who is also provided coverage under the Directors and Officers insurance policy, then the claim is excluded.


Breach of Contract

Let`s say your Housing Association voted to have the landscaping totally remodeled in a beautiful botanical garden style. After the long procedure of finding the right landscaping company and the right price, the landscapers start the process of transforming the common area into a beautiful sight. Then the unthinkable happens….the project everyone was so ecstatic about is not turning out as predicted. It seems the landscaping firm is not doing the quality of work everyone expected. The Board decides to end the contract with the landscaper and what happens? The board ends up a lawsuit for breach of contract. Daily housing associations are signing contracts with painters, landscapers, contractors, etc. If anything occurs during the course of the contract and the board needs to terminate it, they are now susceptible to lawsuit. This is where the Directors and Officers insurance comes in and will cover your defense in such a case.


Claims Reporting

One of the vital things to remember when facing a claim situation with respect to your community association is to report the incident to your carrier right away. As soon as you are aware that a demand has been made for some form of action or relief you need to report it as soon as possible.


Contact Your Broker

There is a lot to know about Directors and Officers insurance and it is a smart decision to speak directly to your broker about the type of policy you have and if it is the best type of policy you can get with the most comprehensive coverage. Stand-alone Directors and Officers insurance policies provide the broadest amount of coverage and it would be intelligent to bring up the issues set out above in order to determine if you and your community association are adequately protected. Remember that an educated consumer is the best consumer, so don`t be afraid to ask lots of questions!


Kevin Davis Insurance Services has made a commitment to volunteer during the Insurance Industry Charitable Foundation’s Fourteenth Annual Volunteer Week.

IICF Volunteer Week is an industry-wide, eight-day event where teams of insurance industry employees provide three or more hours of volunteer service to community nonprofit organizations throughout the week. Last year more than 4,000 industry volunteers participated in over 600 service projects, contributing over 14,000 volunteer hours at nonprofit agencies across the United States.

This year The Sullivan Group will again be visiting a very special organization. On Tuesday October 18th, we will host a Harvest Festival for the children at Para los Ninos. This is a family service agency designed to raise at risk children out of poverty and into brighter futures through positive educational opportunities.

For more info visit-

Be Protected Against Theft!

Posted: September 17, 2011 in Uncategorized