Joel Meskin, Esq., CIRMS was interviewed for a podcast with Insurance Journal’s HowToWrite chapter. Check out this awesome podcast, here.
Below is an excerpt taken from Meskin’s article, Good Intentions Are Not Enough, featured in Rough Notes in 2003.
When you sell property coverage for condominiums, co-ops and homeowners associations, do you ask these clients if their members have directors and officers (D&O) insurance covering their volunteer board members? It’s important to get answers to this question, not only for them, but also for your own protection as the insurance agent.
Agents who don’t sell this product, or who don’t fit the D&O coverage to the specific insured, could end up on the wrong end of an E&O suit. That’s why we urge agents to treat this coverage with as much attention as they give to property or general liability.
But it’s not just a matter of self-protection. It’s about opportunity. Given the growing liability risk involved with board membership, more and more community associations recognize the need for protection.
Why D&O is Important
People who volunteer to serve on association boards normally do so with the best intentions. Unfortunately, in a world where lawsuits are filed at the drop of a hat, good intention are not enough and claims will be brought against association boards regardless of the care and seriousness the board members take in approaching their duties. Thus, these volunteers need the best available D&O coverage they can obtain. It is the agent’s responsibility to get the appropriate coverage.
Picking Policies and Coverages
Today, the number of carriers and agents offering D&O policies to community associations is limited. Notwithstanding the limited market, there are still wide differences among the available coverages. Agents need to understand these differences.
While some agents sell D&O on a stand-alone basis, many sell the coverage as part of an insurance program, which includes property, general liability, workers compensation, and boiler & machinery. In addition, the coverage also may be offered as an endorsement. It is imperative for any agent to know the differences, if any, between the package D&O coverage and the stand-alone coverage. In our experience, the differences are very often substantial, and the cost differential is often minimal in comparison. Knowledge of these differences also can easily be exploited as sales opportunities.
Another question most agents will be asked and should be prepared to answer is, “how much D&O coverage is enough?” The analysis for D&O coverage is different from other coverages. With property coverage, limits are typically based on property and/or replacement value. With general liability, the concern is the potential impact of large exposures, including large bodily injury type settlements. With D&O, the analysis surrounds the personal liability of the directors and officers and what is enough to cover the exposure.
In our experience, it is not unusual for associations to be over insured in this area. With general liability, the concern is large bodily injury awards. Under D&O policies, however, bodily injury is excluded, so the large bodily injury payments are generally not a concern. What is more of a concern is that limits often drive settlements. If large limits are available, they could prevent reasonable or expeditious settlements.
A large exposure for board members is defense fees and cost. Why is this important? It is expensive to defend most claims, and legal fees can push relatively small claim costs much higher. In one wrongful termination case involving a property manager, the lawsuit paid $20,000 in damages and another $15,000 in legal fees.
For more information, contact Joel Meskin directly at 800.545.1538 x2240 or by email at jmeskin@mcgowanins.com.
Want to Learn More?
Check out our Guide: The Four C’s of a Successful Community Association
