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Why D&O?!

06/01/2023 10:57 AM | Anonymous member (Administrator)

By Nicole Hernandez

Putting it in today’s terms, one of my biggest “cringe” moments being an HOA insurance specialist is when a Board of Directors decides they do not wish to procure Directors and Officers Liability Insurance (D&O).  In my mind, (and I’m sure many of you share this same opinion), this coverage is absolutely necessary to protect the Board from allegations of wrongdoing and the defense against such claims. Often, I find that the reason a Board may choose to decline procuring D&O coverage is because they do not understand why this coverage is necessary and what exactly it covers.  

I recall the time I experienced a discrimination complaint in my prior life as a Community Manager.  A resident was dissatisfied with the general landscape maintenance of the common areas and filed a complaint with DORA against the Board of Directors, the landscape company, Management, and the Association itself.  Fortunately, we did have a D&O policy in place and coverage for the response and defense was provided by the insurer.

The first step in the complaint was gathering all the documentation related to the matter to bring forth with our response. In this case, we wanted to provide records of all landscape work orders, all planned and executed landscape projects and architectural control records related to landscape modifications.  Additionally, any meeting minutes that mentioned the same and phone records were requested. I imagine with today’s technology, the compilation of these records would be much more streamlined, but back then it was a process to collect all this various documentation. Additionally, as management contracts often work, the additional time required to gather the records, copies and claim management were outside of the standard routine services as defined in the management agreement, so this all resulted in additional expenses for the HOA.

The greatest expense for the community was the attorney fees and court costs required to respond to the complaint. The attorney had to review the records through the lens of the complaint and draft a response to the State regarding the allegations. As is common with such claims, additional information needed to be provided before the State eventually closed the complaint with no finding of any violation by the defending parties.

Due to the nature and desired resolution of the original complaint and the Board’s sincere desire to rectify the issue and resolve any lingering feelings of being wronged, several meetings were held with the complaining party, Board and landscapers trying to come to a satisfactory resolution of the landscape in question.  The additional meetings required a mediator, which was also provided and funded by the HOA itself.

In the end, the response and defense of the claim took over nine months and an estimated expense of $50,000 in attorney fees, court costs, and settlement expenses, all of which would have been funded by the association if it had not carried D&O coverage.  I am not aware of any communities that regularly budget a $50,000 contingency, attorney fee expense, or other relevant line item, so it is likely that a loan or special assessment would have been necessary to fund this unexpected expense.

It seems like such a silly example. We had to engage attorneys, a mediator, and the court system to resolve an aesthetic issue with common area landscaping (I hear the chuckles coming from my Community Management friends now….do I dare mention native grasses?!), but these are common situations when we live in proximity and are unable to find common ground on matters that may be seen from different perspectives.

I use my personal example of landscaping to illustrate the types of D&O claims we experience in HOAs.  Allegations of discrimination, unequal covenant enforcement, improper meeting notice or elections, ACC processes, or decisions are all examples of an issue that may arise at any point in our communities.  Without Directors & Officers Liability coverage, the community would be left to self-fund the additional expense related to the response and defense of the claim. Remember, this is not just attorney fees and court costs; the additional time and energy costs should be considered too.


With over twenty-two years of combined Community Association Management & Insurance experience, Nicole understands the structure of Community Association Management and the challenges Managers and Boards face daily. Nicole is passionate about helping Boards and Managers assess their risk and designing proper insurance programs that cater to their communities.

(303) 585-0367

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