Discussing D&O Insurance 10 Things You Need to Know

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.


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  • Kenneth J. Finger, Esq. on Saturday, November 3, 2007 11:16 AM
    You might be interested to know that a D&O carrier disclaimed in a situation where a Board rejected a loan application and would not sign a recognition agreement (for reasons not relevant to this submission) A year and a half later the shareholder sued and the carrier disclaimed stating that when the attorney for the shareholder inquired as to the reason for the declination and asked for information, the carrier should have been notified. To carry that argument to its logical extreme, any inquiry by anyone would require notification to an insurance carrier - an absurd result. I would be happy to discuss this with any interested party.
  • If a board has not done proper due diligence on large projects that resulted in enormous damages and owner assessments, might DO insurance be used for that type of claim?
  • @unkonw: what type of damages / work are we talking about?
  • our d&O carrier says it won't cover cases that don't ask for damages. they failed to warn us when they added that amendment. we are now in a $400,000 suit.
  • we do not have D&o insurance, because 2 LLC members on the Board. Can you make any suggests?
  • In dishonesty insurance/ fidelity bond cases, who can put a claim, only the board of directors or an home owner to?