DON’T SWEAT THE THREATS – Part 4

DIRECTOR AND OFFICER INSURANCE

Tim and Steve Sellers

 

This is the last in our four part series that explores the protections the law provides for those who serve their communities as association directors and officers in North and South Carolina.

 

The business judgment rule and immunity cannot keep a person from being sued and indemnification may be limited by the association’s governing documents, may be difficult to obtain during the course of a proceeding and may be of little practical benefit if the association has no money.  Because of these very practical concerns, it is essential that every association obtain and maintain adequate director and officer liability insurance coverage.  This is important not only to ensure that any judgment rendered against a director or officer is paid but also to ensure that the cost of the defense is covered while a lawsuit is pending.  Associations in both North and South Carolina are authorized by statute to insure their officers, directors, employees and agents regardless of whether the association would have the power or the funds to indemnify those persons against the same liability under its governing documents or applicable law.  NCGS §55A-8-57(b); S.C. Code 33-31-857.

A detailed discussion of director and officer liability insurance is beyond the scope of this overview.  However, it is sufficient to say that not all director and officer liability policies are created equal.  For example, policies may differ with respect to the people and/or types of claims that are covered.    There are also important differences between “add-on” coverage and “stand alone” policies.  All of these issues should be explored with the association’s insurance professionals so that the association can make the best possible choice to protect the organization and its leaders.

Ignoring the need for adequate director and officer insurance coverage is not an option.  Accordingly, every director and officer should investigate and verify that adequate director and officer insurance is acquired and kept in place by the association.  In our opinion, every director and officer should have a copy of the applicable policy (or policies) and should take care to read and understand the applicable coverage.  If any potential claim is made, notice should immediately be given to the insurance carrier as the policy requires.  This is truly a no brainer.  Get it and keep it in place . . . or resign.

Review, Revise and Reduce Your Risk

Association directors and officers should be able to serve well and sleep well.  The protections available by law and through the association’s governing documents, combined with good insurance, should give an association’s officers and directors considerable peace of mind.  Volunteer officers and directors who act in good faith, stay within the scope of their authority, are thoughtful in their decision-making, steer clear of conflicts of interest and obtain adequate liability insurance are well protected.  That protection is even more substantial if the association’s governing documents contain strong provisions eliminating liability and/or providing broad indemnification as allowed by law.    If desired, we are ready and willing to review your documents to determine the scope of protections they currently provide and make suggestions on changes that will provide even better protection for your association’s leadership and encourage others to serve with you in the future.