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The problem with the term General Liability (GL) is that it can be interpreted as being a bit more encompassing than it actually is.  


Not-for-profit Organization:  

For this post (I’m jacked up on my wife’s coffee this a.m. so I feel like this one is going to develop into something constructive) let’s use the example of a not-for-profit organization with a construction arm (e.g. let’s say they build and or repair properties for individuals in need).

They definitely need a GL policy since it will provide protection from claims  of  bodily injury or property damage as a result of their construction operations.

 

As a Director and Officer, your Personal Assets are Exposed: 

However, if a claim is brought against a Director or Officer of said organization for, say, breach of fiduciary responsibility (e.g. an allegation that a Director did not act in the organization's best interest), if not advised properly, it would be easy for the organization to think, “We’re ok, we have a General Liability Policy.”  And, who’s to argue with that logic, since even Merriam Webster defines General as:

           involving, applicable to, or affecting the whole

 But, unfortunately, the GL policy will exclude this type of loss.

 

This exclusion is particularly bad for the Director(s) that face’s the allegation, since they are the one that is making decisions, taking action, etc., on behalf of the organization, their personal assets may be exposed.

 

Any number of potential allegations can be made:

  • Perceived Financial Weakness with allegations of Breach of Fiduciary responsibility

  • Perceived Conflicts of Interest

  • Allegations of misrepresentation

  • Etc.


Suits can come from a number of sources:

  • Employees

  • Shareholders

  • Donors

  • Vendors

  • State Regulators (e.g. mismanagement of funds)

 

Even if the Allegations are groundless, a D&O Policy will provide a defense – and the cost to defend could be significant in terms of money and time.  Absent D&O coverage, the Director(s) and Organization are left to their own resources.

 

Are you a Board Member of an HOA:

Many individuals face this type of exposure and may not even realize it – I am referring to Board Members of Property (e.g. Home or Condo) Associations.

 

You are appointed to make decisions on behalf of the Association, so your personal assets are exposed in the event of a claim.


Claim Examples:
 

  • Mismanagement of Association Funds

  • Allegations of Improper Election

  • Etc. 


Adding to this concern, is the common issue of frequent Property Manager (PM) and Board Member turnover.  It’s not uncommon when the new PM comes in or the new Board, they are going to shake things up a bit. 

 

One of the most common things they do is start looking for ways to cut expenses, which can be a good thing, but if you are a Board Member (or a past Board Member), careful consideration must be given before a change is made to your D&O coverage.  

 

I’ve seen many times where the new PM or a Board member, doesn’t know ^%#* about insurance, but they  come barreling in, making significant changes to the Association’s Coverage in order to boast to the other board members about the terrific savings they secured.  However, the unknown cost to the Association and other Board Members, is significant gaps in coverage which can be so large, that if a claim does occur, the nominal insurance savings, will be long forgotten.  


An endorsement that provides a false sense of security: 

Often an endorsement can be added to a General Liability Policy to include D&O coverage and the premium is quite a bit less than a true D&O policy - this is frequently one of the cost cutting methods mentioned above.   You should avoid this like the plague – in simple terms, it is the equivalent of buying a brand new car and getting Comprehensive coverage but no Collision. 

 

In Summary:

For organizations D&O coverage is vital for the protection of the organization and the Directors and Officers.  For a smaller business, it can be used as a tool to hire and retain top talent when you are competing with a company that may not have coverage. 

 

For prospective HOA Board Members, I’d go so far as to recommend asking for a Copy of the D&O policy before even considering the position. If a claim does occur and there is no D&O policy or you have to rely on the aforementioned endorsement, you’ll likely find you’re  %#$%^* - and don't expect to find the coverage in your the Liability Section of your Homeowner's policy, it's not there. 

Settlement of D&O claims can be very large, and even if the allegations are groundless and defense is successful, the cost and time to defend can be very significant. I think you'll sleep better at night, knowing that if a claim does arise, you can simply turn the matter over to an Insurance Company that will provide strong legal representation for you (that could cost you thousands of dollars) and pay any settlement.  

Time and money is much to valuable to waste on something like this and I'd  venture most people don't have the liquidity or time to allocate to a D&O claim.  I surely don't - I have 2 underfunded college funds and 2 kids that aren't exactly setting the world on fire academically. 


This turned out pretty decent.  A Facebook Share may be warranted if you have any friends or family members serving on an HOA Board or a Linkedin share if you know any on a Company Board of Directors.  

If you are a Board Member, the email share below, may be good to shoot to the Board President if you are not certain the level of coverage you have.   If it is not adequate or you are not certain - send me an email: 
dan@hebbeln-ins.com

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Chesterfield, MO 63005
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