Directors/officers liability insurance critical.

Directors & Officers Liability coverage is a necessary part of any insurance program for cooperative or condominium associations. As with many types of insurance coverage, there are subtle and not so subtle differing terms and conditions. The following addresses some of the various issues. First, note that Directors and Officers Liability coverage (D&O) is an Errors and Omissions coverage, i.e. claims brought against Directors and Officers for "Wrongful Acts": Breach of duty, negligent acts, omissions, misstatements or misleading statements. Claims brought against directors for Bodily Injury or Property Damage Liability (Public Liability) are covered elsewhere in the Commercial General Liability policy, where different terms and conditions apply.

D&O Liability coverage can be written as an endorsement to the package policy or as a separate policy. The stand alone policies tend to be more expensive, but there is value in continuity of the D&O coverage, even if the package policy carrier changes. Conversely, there is value in one carrier defending a suit that encompasses allegations triggering both the D&O coverage and the Public Liability coverage.

Who is Covered

Certainly Directors & Officers and the form should cover the co-op or co.do association. Some forms will also include committee members or share-holders acting on behalf of the board. Some carriers will attach exclusions for claims brought against one director from another, especially if the sponsor holds seats on the board. Some exclude coverage for the sponsor altogether.

"Claims Made" Reporting

D&O coverage is written on a "claims made" reporting form basis. This means that the policy in force at the time the claim is made known to and brought against the Insured is the policy that will respond. Many forms will cover claims which occurred prior to the effective date of the policy if the Insured was not aware of the claim prior to the effective date of the coverage. A "Prior Acts" endorsement will ensure that this exposure is covered in the policy you choose.

Forms differ as to the definition of what constitutes the reporting of a claim. They usually address the issue of purchasing "tail" coverage for policies which are being non-renewed or rewritten elsewhere. The "tail" period extends coverage for an agreed upon period after a policy has ended to protect against claims that may have occurred during the policy period but are reported after expiration.

Retention and Deductible

Section #727 of the Business Corporation Law calls for the Commissioner of Insurance to set minimum Self-Insured Retentions and Deductibles on D&O Liability coverage. Not all carriers subscribe to the minimums and some will be higher.

Defense

There are a number of factors within the defense area that are addressed differently by each carrier, both within their forms and as part of their claims handling guidelines.

* Though it may not be stated within the policy form, some carriers will allow the insured to appoint an attorney of choice, provided the attorney has expertise in the field and charges reasonable and customary fees

* The cost of defense may be either in addition to or included in the policy limit

* The cost of defense may or may not be subject to the retention and deductible

* Forms differ as to a carrier's obligation or duty to defend if allegations are not covered under the terms of the policy. This could result in the insured paying the portion of the defense for uncovered allegations

Exclusions

There are always exclusions within the policy forms. Some common ones are:

* Bodily Injury and Property Damage Liability

* Profits and losses made from the purchase or sale of securities

* Anything other than money damages

* Effecting and maintaining the proper insurance

* Personal profit or advantage

* Pollutants 

* Illegal discrimination

* Intent to deceive or defraud 

Wording and content vary, and some exclusions can be eliminated upon request.

Be familiar with your form so there are no surprises. No one form is superior to all others. Approaches differ, as does underwriting criteria. Your insurance broker who has expertise can help.

Carla Vel is a vice president of Kaye Insurance Associates. Kaye currently arranges the insurance for over 4000 buildings in the New York Metro area comprising nearly 140,000 apartment and co-op/condo units.