POST-EVENT SUMMARY: Protecting your Assets: A Primer on Directors & Officers Liability Insurance



Directors & Officers (D&O) liability claims can come with significant financial consequences. A D&O liability insurance policy is intended to protect directors and officers from damages resulting from allegations of wrongful conduct and lawsuits when acting in their capacity as a board member.  
 
FirstService Residential hosted a symposium on November 16, 2017 during which a panel of legal and insurance experts helped attendees better understand how to protect their association and their personal assets in the event of a claim.
 
Dan Wurtzel, president, FirstService Residential New York, moderated the discussion which covered various types of claims – from housing and employment discrimination complaints, contractual disputes and wrongful termination, to breach of fiduciary duty, harassment, negligence and misuse of funds.
 
Stemming from this discussion, we’ve compiled a summary of Best Practices for Avoiding a D&O Claim:
 
Consult with professionals. Regardless of the association’s size, retain the services of your attorney or insurance professional for major transactions.
 
Operate like a business. You have been assigned with the responsibility of running a business, with a budget, an operating account, reserve accounts, employees and a team of professionals. 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. A board is protected by the business judgment rule, so long as the members of the board act for the purposes of the association, within the scope of its authority and in good faith. 
 
Don’t engage in a tort. A board member can be held personally liable if he/she is found to have engaged in a wrongful act that leads to civil legal liability. Be cognizant of potential issues of libel, slander, and discrimination.
 
Keep good records. Keep accurate minutes of board meetings, complete financial records, as well as complaint logs to document the board's activities.
 
Follow the rules. Be well-versed in the by-laws and 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 owners and shareholders 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.
 
Ensure adequate coverage. Ensure the D&O liability 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.
 
Immediately notify an insurer of claims. Report a claim to your carrier right away. Most D&O liability 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.
 
Elect only serious board members. Make sure each potential board member fully understands what the job entails and will handle his/her duties in a professional manner. The boards with fewer claims are generally the ones that work cohesively with each other. Members agree to disagree, but do it on a professional basis and not let it get personal.
 
Effective communication. To help owners develop a sense of trust in the board, provide a steady flow of information. Create a communications plan that identifies what information will be communicated (new information, progress to date, anticipated problems, decisions made), how it will be communicated (personal contact, letter or email, group meeting), by whom will it be communicated (president, secretary, property manager, etc.), and when will it be communicated (date, frequency).
 
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.
 

IN WHAT SCENARIO CAN A BOARD MEMBER BE FOUND PERSONALLY LIABLE?

A board member can be personally liable if they engage in an action that is outside the scope of his/her duties as a director. The most common situation involves a rogue board member who decides that he will not follow the majority decision on an issue. Most provisions in governing documents require indemnification of a board member challenged for a decision or conduct as a board member, unless his or her conduct is "grossly negligent," "willful," or for his or her own personal interest. 
 
The conduct of a board member contrary to a majority vote constitutes willful conduct. Accordingly, he or she may not be covered by a D&O liability policy and may not qualify for indemnification under the governing documents; instead, he or she will become personally liable for assessed damages. 
 
A board member that engages in any kind of discrimination against someone in a protected class (i.e. race, ethnicity, etc.), engages in embezzlement, or conducts criminal behavior, is also personally liable. 
 
 
What are the dangers of a board using their personal or work email to conduct board business?
Click
here for our "Best Practices for Association Board Email Infographic."
 
 
SAVE THE DATE: THURSDAY, JANUARY 25, 2018
32BJ Strike Preparations: What Board Members/Building Owners Need to Know - Expectations, Preparation, Execution
 
Hear directly from Howard Rothschild, President of the Realty Advisory Board on Labor Relations (RAB), who will represent building owners in the upcoming labor negotiations for the Building Service Workers Union 32BJ contract.
 
The contract, which expires on April 20, 2018, covers more than 30,000 NYC building staff. A walkout of this magnitude would have enormous implications for owners and residents throughout the city.
 
Dan Wurtzel, RAB Board Member and President of FirstService Residential New York, will moderate the event.  Invitations will be emailed in early January 2018.
 

CAPTION: The panel included (from left): Joel W. Meskin, Esq., VP, Community Association Insurance and Risk Management, McGowan Program Administrators; Aisling Jumper, Esq. VP, YorkPro, Inc.; Dan Wurtzel, President, FirstService Residential, who served as moderator; Robert J. Braverman, Esq., Managing Partner, Braverman Greenspun; and Sean Kent, VP, FS Insurance Brokers.