Top Ten Best Practices for Officers and Directors Liability Insurance
By Sean Kent, CPCU, Vice President, FS Insurance Brokers
Directors & Officers (D&O) liability insurance is intended to protect directors and officers against allegations of wrongful conduct when acting in their capacity as a board member. Following are the top ten best practices for avoiding D&O claims:
Follow the rules.Be familiar with the by-laws and other governing documents. The board has a fiduciary obligation to protect the association’s assets by placing the interests of the association above any individual interests. Ensure new association members receive and sign-off on the documents when they move into the building to be sure they know their rights, duties, and obligations.
Make sure the rules are current.Conduct a periodic review of the governing documents; retain professionals to ensure they are in compliance with current laws.
Elect only serious board members.Make sure potential board members know what the job entails.
Hire professionals.Regardless of the association’s size, counsel should be retained for major transactions.
Keep good records.Keep accurate minutes of board meetings, complete financial records, as well as complaint logs to document the board's activities.
Operate like a business.Follow basic rules for running a meeting, e.g. Robert’s Rules of Order, as a way to keep emotions and personality conflicts from interfering with association governance.
Immediately notify an insurer of claims.Most D&O policies require associations to provide timely notice of claims, as well as notice of circumstances that may later give rise to a claim. Insurers are in the business of risk management and can assist in early resolution of claims or potential claim situations.
Don’t engage in a tort.
A board member can be held personally liable if they are found to have engaged in a wrongful act or an infringement of a right that leads to civil legal liability. Be cognizant of potential issues of libel, slander, and discrimination.
Ensure adequate coverage.
Ensure the policy meets the limits set forth in the governing documents. Confirm that your policy covers past, present, and future directors and officers; their spouses; committee members and volunteers; building employees; and your managing agent and property management firm.
Limit email use.
Use email for administrative matters such as setting dates for meetings. Don’t let emails become a source of discoverable information. When an issue begins to go awry, cease emailing and consult your managing agent on how to proceed.
Board members should discuss their insurance needs with their broker or agent to ensure they have adequate coverage for themselves and their association.