Serving on the board of a condominium association, homeowners association, or other community association means making decisions.
Some are routine. Others involve assessments, rule enforcement, architectural requests, contracts, budgets, elections, reserves, and disputes between neighbors.
And sometimes, someone believes the board made the wrong decision.
That is where Directors & Officers Liability Insurance—commonly called D&O insurance—can become an important part of a community association’s insurance program.
But D&O insurance does not cover everything a board member might be blamed for.
Understanding the difference can help boards recognize both the protection their policy provides and the potential gaps they should discuss with their insurance advisor.
What Is Directors & Officers Liability Insurance?
In general, D&O insurance is designed to respond to certain claims alleging that the association, its directors, officers, or other insured persons committed a wrongful act while managing or governing the association.
Depending on the policy, a wrongful act may include an alleged error, omission, misstatement, neglect, or breach of duty.
An important part of D&O coverage is often the cost of defending the claim.
A board does not necessarily have to do something wrong to incur legal expenses. An owner, vendor, employee, or other party may make an allegation that requires the association or its board members to respond and defend themselves.
What Can D&O Insurance Cover?
Coverage varies significantly by carrier and policy form, but community association D&O policies may respond to allegations involving issues such as:
Breach of Fiduciary Duty
A homeowner alleges that directors failed to act in the best interests of the association or improperly handled an association decision.
Failure to Follow Governing Documents
A claim alleges that the board failed to follow the declaration, bylaws, rules, or procedures of the association.
Rule and Covenant Enforcement
An owner alleges that the association improperly enforced—or failed to enforce—a restriction.
This can include allegations of inconsistent or selective enforcement.
Architectural Decisions
An owner challenges the approval or denial of an architectural modification, such as a fence, deck, addition, exterior modification, or other request.
Elections and Board Procedures
Claims can arise from disputed elections, voting procedures, board authority, meeting procedures, or other governance matters.
Assessments and Financial Decisions
Boards make decisions involving budgets, reserves, assessments, and expenditures. Those decisions can sometimes result in allegations of mismanagement or breach of duty.
Discrimination or Fair Housing Allegations
Some community association D&O policies provide coverage for certain discrimination or Fair Housing-related claims.
However, the scope of this protection can vary considerably between policies and should be reviewed carefully.
Employment-Related Claims
If an association has employees, certain policies may include Employment Practices Liability coverage for allegations such as wrongful termination, harassment, discrimination, or retaliation.
This coverage should not be assumed to be included automatically.
Defense Costs
Perhaps one of the most important features of D&O insurance is defense coverage.
Even when an allegation is ultimately determined to be unfounded, attorneys’ fees and other defense expenses can become significant.
Boards should understand whether defense costs are inside or outside the policy limit, because defense expenses can potentially reduce the amount remaining to pay a settlement or judgment.
What Doesn’t D&O Insurance Typically Cover?
This is where the distinction becomes especially important.
D&O insurance is generally designed around management and governance decisions. It is not intended to replace the association’s other insurance policies.
Bodily Injury
Suppose someone slips and falls at the community pool and alleges the association was negligent.
That would generally be a General Liability issue rather than a D&O claim.
Property Damage
If a pipe bursts and damages several condominium units, the resulting physical damage would generally involve Property Insurance and potentially other coverage—not D&O simply because the board manages the building.
Theft or Embezzlement
If association funds are stolen by someone entrusted with them, the association would generally look to its Crime or Fidelity coverage.
D&O insurance should not be viewed as a substitute for crime insurance.
Cyber Incidents
A ransomware attack, data breach, fraudulent electronic transfer, or other cyber event may require Cyber Liability or Crime coverage, depending on what occurred and how the association’s policies are structured.
Dishonest, Fraudulent, or Criminal Conduct
D&O policies commonly contain exclusions addressing fraudulent, dishonest, or criminal acts.
The exact wording matters—including whether an exclusion applies when misconduct is merely alleged or only after a particular determination or adjudication.
Personal Profit or Improper Advantage
D&O insurance generally is not intended to allow a director to personally profit from improper conduct.
Policies may exclude claims involving an insured gaining a personal profit, remuneration, or advantage to which that person was not legally entitled.
Known Circumstances or Prior Claims
D&O policies are commonly written on a claims-made basis.
A dispute or circumstance that was already known before coverage began may create a coverage issue, particularly if it should have been reported under an earlier policy.
This makes timely claim reporting extremely important.
Certain Insured-vs.-Insured Claims
Some D&O policies contain exclusions or limitations involving claims brought by one insured against another insured.
For community associations, the wording of these provisions deserves particular attention because disputes can involve current directors, former directors, officers, committee members, employees, or the association itself.
Matters Specifically Excluded by the Policy
Depending on the carrier and policy, additional exclusions or limitations may apply to areas such as construction defects, pollution, mold, contractual liability, fines and penalties, or other exposures.
This is one reason comparing D&O policies based solely on the limit and premium can be misleading.
A Simple Way for Boards to Think About D&O
Consider these four scenarios:
A homeowner alleges the board selectively enforced a parking restriction.
Potentially a D&O matter.
A visitor falls on an icy community sidewalk and is injured.
More likely a General Liability matter.
A board member steals money from the association’s reserve account.
Potentially a Crime/Fidelity matter.
A homeowner alleges the board breached its fiduciary duty when approving a major association expenditure.
Potentially a D&O matter.
The common thread in the D&O examples is the allegation concerning a decision or action taken while governing the association.
Not All Community Association D&O Policies Are the Same
Having D&O coverage on the certificate of insurance doesn’t necessarily tell a board how broad that protection actually is.
When reviewing coverage, community associations should consider questions such as:
- Who qualifies as an insured?
- Are past, present, and future directors and officers covered?
- Are committee members and volunteers included?
- Is the association itself an insured?
- Is the community manager or management company covered in any capacity?
- How does the policy address Fair Housing and discrimination claims?
- Is Employment Practices Liability included?
- Are defense costs inside or outside the limit?
- Is there an insured-vs.-insured exclusion?
- What is the policy’s definition of a wrongful act?
- Are there exclusions that are particularly important for community associations?
- How does the policy address prior acts, prior claims, and known circumstances?
These details can make a significant difference when a claim occurs.
The Bottom Line for Community Association Boards
Volunteer board members make decisions on behalf of their communities every day. Even thoughtful, well-documented decisions can be challenged.
Directors & Officers Liability Insurance is designed to provide an important layer of protection for those governance exposures.
But D&O is only one part of the association’s insurance program.
Property, General Liability, Crime/Fidelity, Cyber, Workers’ Compensation, Umbrella/Excess, and other coverages may each address risks that D&O does not.
Rather than simply asking:
“Do we have D&O insurance?”
A better question may be:
“What types of claims would our D&O policy respond to—and where would we need to look elsewhere in our insurance program?”
That is a conversation worth having before a board receives a demand letter or lawsuit.
Community Risk Advisors provides insurance and risk management guidance specifically for community associations.
This article is for general educational purposes and is not intended to provide legal advice or determine coverage for a particular claim. Insurance policies vary by carrier and form. Coverage is determined by the facts of the loss or claim and the terms, conditions, definitions, limits, endorsements, and exclusions of the applicable insurance policies.