What type of insurance does your condo board carry?

Make sure you and your condo board are protected before you buy.
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A condo board -- a group of volunteers and elected individuals that handles disputes and regulations within a condominium community -- doesn't go out riding motorcycles, throwing crazy parties or engaging in the kind of risky behavior that might ordinarily scream, "Get yourself an insurance policy!" So why do many condo boards do just that?

In order to understand their reasoning, let's take a closer look at what condo boards do. No matter how amiable a community is, there are bound to be disputes, and that's why the board is there. Whether one resident isn't cleaning up after his dog or another family is painting their front door bright purple, the board's function is to mediate and resolve these disputes.


These may not seem like major issues, and in fact, a condo board's job description didn't always require insurance. However, with the rise of litigation in the U.S. and unhappy residents -- often those on the losing side of boards' rulings -- came an increase in lawsuits against condo boards. As a result, many boards invest in Directors and Officers liability insurance, or D&O insurance, as it's more commonly known. D&O coverage protects directors like board members from liabilities connected with their positions [source: Gische].

One key component of a D&O policy is a duty to defend clause; if included, the insurer is required to take ownership of the entire defense -- ranging from selecting legal counsel to footing the bills. A slightly lower-touch variation is duty to pay, which means that the insured does the legwork, but the insurer reimburses for all costs [source: IRMI.com].

Unfortunately, when a board files a claim on its D&O policy, it might also find a less pleasant clause coming its way: a reservation of rights clause, which outlines potential reasons the claim might not be covered. Commonly reserved rights include the right to deny coverage for ultimate judgments, the right to seek reimbursement for settlements and the right to withdraw from defense [source: Olson].

However, if you're a member of a condo board, you're not on your own against sue-happy residents. A community association institute (CAI) is an organizing body that provides resources to large groups of individual condo boards -- including support for boards faced with legal issues [source: Community Associations Insititute].

Are you curious about more resources available to condo boards? We've got lots more information on the next page.


Author's Note

Not living in a condo myself, I had a lot to learn during the research process for this article -- much of which I hope will prepare me for a big purchase one day! I actually had no idea that insurance to protect directors and officers existed; considering how much litigation many of them must deal with, it's a good thing that resource exists. One tidbit that didn't make it into the article is that D&O insurance is actually primarily used by corporations and their boards. And when events like the mortgage crisis happen, I'm sure they need it!

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More Great Links


  • Community Associations Institute. "About Us." (July 14, 2012) http://www.gmsr.com/article/The%20Meaning%20of%20An%20Insurance%20Carrier's%20Reservation%20of%20Rights%20-%20Part%20I.pdf
  • Gische, David M. "Directors and Officers Liability Insurance." Troutman Sanders LLP. (July 14, 2012) http://library.findlaw.com/2000/Jan/1/241472.html
  • IRMI.com. "Duty to defend." (July 14, 2012) http://www.irmi.com/online/insurance-glossary/terms/d/duty-to-defend.aspx
  • Lending Tree. "Condominium Association (Definition)." (July 14, 2012) http://www.lendingtree.com/smartborrower/glossary/c/condominium-association/
  • Olson, Robert A. "The Meaning of an Insurance Carrier's Reservation of Rights -- Part 1]. Association of Business Trial Lawyers. (July 14, 2012) http://www.gmsr.com/article/The%20Meaning%20of%20An%20Insurance%20Carrier's%20Reservation%20of%20Rights%20-%20Part%20I.pdf
  • Passante, William G. "D&O Liability Insurance Basics." Anderson Kill & Olick. (July 14, 2012) http://www.andersonkill.com/webpdfext/BP-200404CorpCnsl.pdf