No D&O Insurance? Oh My!

No D&O Insurance? Oh My!

“I am not on the board anymore and they dropped the insurance.What is the downside of not having it? Can they be forced to get the insurance?” Below is an article from the Davis-Stirling.com Newsletter by ADAMS | STIRLING PLC regarding the Directors and Officers Insurance.

QUESTION: I used to be on the board and insisted that we get D&O insurance. This year I am not on the board anymore and they dropped the insurance. What is the downside of not having it? Can they be forced to get the insurance? Can I withhold dues until they get it?

ANSWER: Dropping D&O Insurance is like standing next to a pond at Disney World. You could get eaten. It gives me the willies just thinking about being uninsured (getting eaten runs a close second).

Exposure. Not carrying insurance is almost certainly a breach of your governing documents. It may also qualify as a breach of fiduciary dutiesand a breach of the business judgment rule. It exposes your association to large special assessments and exposes directors to liability in the event of litigation. To avoid personal liability, the Davis-Stirling Act requires at least minimum levels of D&O coverage. Not having insurance is known as running naked” because your directors are completely exposed.

Recourse. Can the board be forced to get insurance? Yes. You can go into court for an order that the board comply with your governing documents to purchase insurance. Can you withhold dues until they get it? No. You have a duty to pay regardless of the board’s bad decisions.

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For more knowledgeable information regarding the business of HOA’s, visit: The Davis-Stirling.com Newsletter