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Dealing with D&O
Enforcing House Rules
Pool Closing
Snow - How to plan for the inevitable
What is a Management Company?
What Your Manager Should Know
Self-Management: Risky Scheme?
Why Bother to Budget?
Review Your Record Keeping
What Are You Getting for Your Management Dollars?
Article: Dealing with D&O
By: Alvin Wasserman
From Habitat Magazine
Alvin Wasserman is director of Fairfield Property Services in Commack, N.Y.
Boards of directors are generally aware of the need for
Directors and Officers liability insurance. What they
may not be aware of are significant differences in
coverage offered by insurance carriers for this
coverage. The best coverage available for Directors and
Officers insurance can be many times more expensive
than the least expensive policy. Is this difference in
cost worth the added protection?
Cooperative boards have come under fire for rejecting
sales and sublet applicants and refusing to give a
reason for their decision. Cooperative boards have
relied upon New York State Business Corporation Law
that allows corporations to keep their business
decisions private. Unbeknownst to many board
members, federal law requires explaining your actions
when a discrimination suit is filed. Thus, the corporate
veil is lifted.
When a discrimination suit is filed, it must be
defended whether or not a case has merit. It is rare for
a judge to grant a summary judgment dismissing the
case even if it appears capricious. Usually, there is a
question of law that needs to be satisfied. Legal
defense for a discrimination suit can run in the tens of
thousands of dollars. Who will pay for the defense: the
insurance company, the cooperative corporation, or the
association?
The most significant difference between various
policies is whether legal defense is covered. The legal
defense of a discrimination suit can be greater than
settlement costs. Insurance that covers legal defense
can cost several thousand dollars more per year than a
policy without this coverage. The board must make a
business decision to purchase comprehensive coverage
at a higher cost or risk the cost of litigation when
faced with a claim.
Another significant concern is whether the insurance
covers incidents prior to binding the policy? When
completing the application for a new policy, be certain
to disclose any potentially litigious events that have
taken place. Sometimes a rider can be purchased for a
specific occurrence if the main body of the policy does
not cover it. Unfortunately, disclosure cannot cover
everything given daily occurrences at a property. The
litigious nature of our society gives rise to lawsuits for
everything from the absurd to the sublime. The legal
system of a nation can be misused to advance
personal agendas rather than to protect its citizens.
Another blind spot for many board members is their
potential personal liability. If a court rules that an
illegal act was the responsibility of a particular board
member, not the entire board, the corporation, or the
association, the insurance carrier may deny coverage to
the individual board member. Every board member
should have a personal umbrella policy. The umbrella
policy must include coverage for serving as a volunteer
on a board where there is no remuneration for work
performed. In some instances, the personal umbrella
policy will provide protection when a judgment is in
excess of coverage on the board's policy or the
insurance company completely denies coverage. Board
members should speak to an insurance consultant for
specific advice.
In the end, I suggest that you always state a reason
when rejecting a sale or sublet application, and be
certain that it is supported by facts, and does not
violate the law. Purchase the best Directors and
Officers liability insurance available ñ do not be penny
wise and pound-foolish. Finally, verify if you have
coverage for serving on a board in your personal
umbrella policy.
Someday, I hope to find an insurance policy written
entirely on one page, with only three words on the
page, "YOU ARE COVERED." Until that day comes,
however, we must take great care in all insurance
matters.
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