The board of directors runs on volunteers. They put in hours of unpaid time and effort into making sure your condo or coop runs efficiently and effectively. And then they make a mistake and wham! There is a lawsuit and suddenly they are being sued. No, not the building, the board or even the property management company is being sued (although that can happen too). It's the volunteer—the one who has dedicated his or her time for the good of the building—who is suddenly facing a lawsuit for thousands if not millions of dollars. Sound scary? Without Directors & Officers insurance, that scenario is not only scary, it's probable.
Unfortunately, directors and officers may make mistakes and, without D&O insurance, these mistakes can be costly, so we've prepared this list of ten things you need to know about D&O insurance.
1. D&O insurance is all about protection. Simply put, says Arthur Schwartz, senior vice president of Masters Coverage Corporation in New York City. D&O insurance, "protects directors and officers from damages resulting from allegations of wrongful conduct and lawsuits. It provides legal defense coverage as well as indemnification of damages."
"A director and officer each have certain fiduciary duties and fiscal responsibilities when serving in their respective capacity for the organization," explains Ronald A. Sher, a partner at Himmelfarb & Sher, LLP, a law firm in White Plains. "The director and officer have an obligation not to violate or breach those fiduciary duties and fiscal responsibilities."
Sher says that the general standard of care is that the director or officer perform such duties with due care, including reasonable inquiry, as an ordinary prudent person in a like position would use under similar circumstances.