Directors and Officers Insurance

Directors and officers insurance, commonly called D&O, covers claims alleging wrongful acts in the management or governance of an organization. For apartment properties, this is most relevant to condominium and cooperative associations with volunteer boards, as well as LLCs and corporations that own apartment buildings where officers and directors make management decisions.

The policy covers legal defense costs, settlements, and judgments when board members or officers are accused of breaching their fiduciary duty, making negligent decisions, failing to maintain the property adequately, mismanaging association funds, enacting unfair rules or assessments, or failing to comply with governing documents and regulations.

D&O policies typically provide three types of coverage. Side A coverage protects individual directors and officers when the organization cannot or will not indemnify them. Side B coverage reimburses the organization when it does indemnify its directors and officers. Side C, or entity coverage, protects the organization itself against certain types of claims.

Individuals who serve on apartment association boards or in officer roles make decisions that directly affect property values, living conditions, and financial assessments for all owners. These decisions can lead to disputes, and unhappy owners or residents may file lawsuits against the board members personally.

Common claims against apartment association boards include allegations of failing to maintain common areas, imposing unfair special assessments, selectively enforcing rules, mishandling reserve funds, and failing to obtain adequate insurance for the association. Without D&O coverage, individual board members could be forced to pay legal defense costs and any resulting judgments from their personal assets.

Recruiting and retaining volunteer board members is difficult enough without asking them to accept personal financial risk. D&O insurance removes a significant barrier to board service by assuring members that their personal assets are protected. For apartment ownership entities structured as corporations or LLCs, D&O coverage protects the officers and managers who direct the business.