Community Association Tip of the Week – “Directors and Officers Liability Alert”


In a previous tip of the week we covered material regarding “When is a Directors and Officers Claim a Claim”? Recently, we have had two cases that have prompted us to cover this very important topic again. Please make sure all Board members, Property Managers and Association legal counsels familiarize themselves with this issue.

Most of you know General Liability bodily injury/property damage claims are written on an “occurrence” form. This means that a covered bodily injury/property damage claim is the responsibility of the carrier that was the carrier of record at the time the incident “occurred” and they must handle the claim. This applies even if that carrier is no longer writing the insurance for that Association.

Directors and Officers coverage is different because it is written on a “claims made” basis. This means that the Directors and Officers policy in effect when the claim is actually presented or “made” is the carrier of record for that claim.

Here is the problem. A claim is defined as any allegation of a wrongful act made in writing. This could include a threatening e-mail or letter; it does not have to be a summons and complaint. Secondly, when a Directors and Officers policy is non-renewed or cancelled, that policy is gone and cannot retroactively be advised of an incident that was actually made during the policy period. The notice must be received during the time they are writing the policy.

Here is a case in point. An Association receives a rambling letter of complaint about some Association issue. The letter also includes a veiled “threat” that if the Board doesn’t address the complaint, the author of the letter may go to the next step (i.e. legal action). This constitutes a “claim,” however some Associations or their legal counsels will not think to submit at that time, dismissing the communication as a situation the Board and their attorney can handle.

Three months later, the Association changes Directors and Officers carriers and a month later, the author of the original e-mail files a lawsuit. The claim is submitted to the current Directors and Officers carrier who begins to defend but in their due diligence they uncover the previous letter and then remove themselves from the defense as a claim was “made” prior to their term and therefore not covered by them.

Upon submission to the previous carrier, they also decline to defend. Even though the letter was written during the policy period they were the carrier; the letter was not submitted to them. As they are no longer the carrier of record, their policy is null and void.

In order to eliminate the above, any correspondence (i.e. e-mail/letter/note on a cocktail napkin) that includes verbiage that could be interpreted to be an “allegation of a wrongful act” must be sent to the Associations agent with instructions to notify the current Directors and Officers carrier of record immediately.

Once done, if a summons and complaint or other action is received down the road, even if that carrier is no longer on the risk, they must proceed to defend that claim (if it is a covered event) due to it having been reported to them during their policy period.

Please feel free to contact us if you have any questions on the above, even if we aren’t the current agent of record for an Association.

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