Page 8 - The NY Cooperator August 2019

8 THE COOPERATOR —AUGUST 2019 COOPERATOR.COM INSURANCE/BOARD TRAINING Directors and Officers Insurance Must-Have, Or Luxury? BY A J SIDRANSKY A t the heart of volunteerism is the This increase can be anywhere from $5 a comfort pet – and claims are brought formed by a genuine regard for the inter- notion of doing something for the million to $200 million, depending on against it. Some D&O policies will give ests of the constituents who voted them common good. For many, choos- ing to live in a co-op or condo community that “umbrella policies are generally pur- is also choosing volunteerism – specifically, chased through risk purchasing groups will defend the suit because they have a paid. volunteering for board service. But within (RPGs), which combine top-rated insur- that sense of serving the common good ance carriers, each taking a portion of the are reserving their rights – because if it’s can demonstrate (and a court believes) lurks the possibility of liability, and that’s risk. This allows associations to purchase determined that the board violated the that a decision was made in good faith on what directors and officers (D&O) insur- ance is all about. What’s D&O, and How Much Do You Need? In a nutshell, directors and officers in- surance is a form of liability coverage that protects the board members of a corpora- tion or association as indemnification for losses or advancement of defense costs in the event that a good-faith decision made by the board or board members results in damages of some sort. When it comes to D&O, Alex Seaman, Senior Vice President of insurance com- pany HUB International, recommends that typically, co-op and condominium associations in the New York area “should carry a $1 million limit. Co-ops and con- dos often also purchase an umbrella li- ability policy, which increases limits on both general liability and D&O liability. what’s needed.” Seaman explains further the board a defense with what is called ‘a into their positions. It does not matter high limits of umbrella liability at excep- tionally low premiums. For example, a results from the action. The reasoning is even if the result of the decision was a loss typical 100-unit property should be able simple to explain: you can’t buy insurance or some type of damage – then the court to purchase $100 million of umbrella li- ability for a premium of approximately $4,000 per year. Based on these numbers, policies will require the carrier to defend able for those losses, and the board’s D&O there’s really no reason not to purchase the insured up until it has been deter- limits of at least $100 million of coverage.” Necessity, or Luxury? Marc Schneider is Managing Partner at a defense under those circumstances. faith, in a self-serving, discriminatory Schneider Buchel, a law firm with offices “D&O is not a free pass to do whatever or otherwise fraudulent manner, then as in New York City and Long Island. He you please,” he says. “Rather, it’s there for stated above, D&O coverage is voided – represents numerous co-op corporations when the board or the board members are and they’re on their own when it comes and condominium associations. Of D&O, sued for the decisions they make.” he says: “It’s in place to cover the board and board members from any lawsuits Robinson Brog Leinwand Greene Geno- against the directors and officers, exactly vese & Gluck, P.C., a law firm also based as it says. However, it doesn’t cover ev- erything, meaning that a board might be have it,” he says of D&O insurance. “It is coverage. Clearly, in a large corporation sued for discrimination – for violating the incumbent upon the board to have it. If or association where there might be hun- Fair Housing Act, for example, or denying I represent someone who is contemplat- reservation of rights,’ meaning that they that the position is a voluntary and un- duty to defend under the policy, but they law, they will not pay any liability that behalf of the community’s greater good – that covers you for breaking the law.” Schneider goes on to explain that some rule. The board is not likely to be held li- mined that the law was violated. Other types of D&O policies won’t even give member is found to have acted in bad Stephen Boonshoft is a partner with ments. in New York City. “Every board should ed premium costs for D&O are worth the ing becoming a board member and their board doesn’t have it, I tell him or her not to run.” He explains that D&O coverage goes hand in hand with other coverages a condo or co-op should carry, such as general liability, property, and casualty. “If directors are sued as individuals, other coverages will not protect them in this ca- pacity.” Board Members and Individual Liability A board member (or the board as a body) may incur personal liabilities as a result of the decisions they make while serving, and under the concept of the business judgment rule. The business judgment rule is a legal doctrine that ex- ists in some form in most common law countries, including the United States, Canada, Great Britain, and Australia. It’s derived from corporate case law, and es- sentially holds that courts will defer to the judgment of corporate executives – including co-op, condo, and HOA board members – where business decisions are concerned. According to the rule, the law accords the directors of a corporation the presumption of being motivated and in- As long as a board or board member generally defers to the business judgment policy will indemnify board members On the other hand, if a board or board time to foot the bill for legal costs or judg- Cost Versus Number of Units One valid question is whether the add- dreds of owners, the personal relation- ISTOCKPHOTO.COM