Directors and Officers Liability Insurance:


Be on the Lookout for Dramatic Coverage Changes


Michael Berg, CMCA, CIRMS Berg Insurance Agency in Partnership with Labarre/Oksnee


Directors and offi cers liability insurance, known commonly as “D&O,” is an imperative policy for anyone serving on a board of directors. This is the policy used to address defense costs and judgements/settlements


for allegations of negligent


decision making by a board. Allegations include discrimination, defamation, failure to enforce rules, reasonable accommodation requests, and nuisance complaints. Historically, insurance carriers have provided broad coverage language,


In recent


years, changes in policy language are limiting or excluding coverage for certain types of claims. Here are two items in particular to ask about when reviewing your D&O policy with your association insurance professional:


Defense Costs and Policy Limits For most


Claims Made and Reported


First, what is a claim? In the simplest terms, a “claim” is defi ned as a written demand for monetary damages. For example, a homeowner claims that the board failed to enforce the governing documents. It’s the demand the association receives from the party who believes they were harmed. Such demands can be received in may ways. Demands can be received via petition, dispute resolution request, threatening email from a law fi rm or member, even some verbal demands should be respected for their potential relevance.


preferred carriers, defense costs are provided


outside of the policy limit. They are, essentially, unlimited. For example, assume we have a policy with a $1 million limit of liability insurance. This limit is not used up by the cost of legal fees and court fees. Those are simply paid as part of the cost of defense. $1 million would still be available for the payment of a judgment or settlement, regardless of the cost of defense.


With the rising costs of defense and court fees, and the increases in settlement or judgment amounts, some carriers are adding limitations on defense costs. A carrier might now be willing to spend up to a certain amount on the cost of defense before starting to use the funds reserved in the policy limit. Or a carrier might now be providing two limits: one for defense costs and another for payment of judgment/settlement. Once the defense cost limit is exhausted, the association will be responsible for its own cost of defense.


I’ll grant you, the capped defense cost is typically $1 million, which is a lot of money, but it’s worth knowing what to expect in the event of a necessary defense. There are a lot of ways for defense cost to be incurred. If there is a necessity to separate defendants for representation, if a case is heard on appeal, if the case requires expert investigation and/or testimony, the cost of defense could increase quickly.


22 January | February 2025


D&O coverage is written on a claims-made form. Meaning, the policy in place when the claim is made is the policy that addresses the claim. Some carriers, up until a couple of years ago, were on a pure claims-made form, meaning a claim must be made during a policy period, but it can be reported to the carrier “promptly” or “as soon as practicable.”


Today, virtually all carriers have changed their language or ratifi ed their language to clearly require a claim to be made and reported during the policy term (or within 60 days of the end of the policy term). For example, assume our D&O policy renews January 1st. If a claim is made prior to January 1st (e.g., the association receives a written demand for monetary damages), but the claim is not reported to the carrier before 60 days have elapsed, the carrier will argue that there is no coverage for that claim. This is true even if the association has renewed coverage with the same carrier.


While these two items are top of mind at the moment, don’t stop there if you have coverage questions. You should be able to rely on our association expert insurance professional for the right coverage and explanations to provide peace of mind.


—Michael Berg is Owner of Berg Insurance Agency, and Vice President of Education, Advocacy, and Corporate Culture for LaBarre Oksnee Insurance. He


can be mikeb@hoa-insurance.com. reached at michael@berginsurance.com or


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