Navigating Director and Officer Liability Insurance for HOAs and Condo Associations

Homeowners Association By People Holding House Model

Community associations (“Associations”) act through their board members and officers, who volunteer and generally serve because they care about their community.

Despite their status as non-profit corporate volunteers, board members can be, and often are, the target of member lawsuits. An important and recommended step that the Association can take to protect itself and its board members and officers in the face of such realities is to obtain directors’ and officers’ liability insurance to cover the costs of defending their directors, officers, committee members and volunteers against such lawsuits. Such insurance is commonly referred to in the insurance industry as “directors and officers” or “D&O” insurance, and is payable to directors and officers of the Association, or to the Association itself, as compensation for losses or increased defense costs in the event the Association suffers a loss as a as a result of legal action filed for alleged wrongdoing by directors and/or officers who were taken in their capacity as directors and/or officers.

Association Purchasing Power

The North Carolina Not-for-Profit Corporations Act, which can be found at Section 55A of the North Carolina Public Code, specifically permits – but does not require – associations to purchase insurance on behalf of individuals who have served as directors, officers, committee members, employees, or agents. Association to protect against liability claimed against, or borne by, directors or officers in the capacity of directors or officers or arising from their status as representatives of the Association. The Association may purchase this insurance coverage regardless of whether the Association authorizes to indemnify directors or officers and regardless of whether the Association has sufficient funds to indemnify certain liabilities. Like Section 55A, Section 47C (North Carolina Condominium Act) and Section 47F (North Carolina Planned Communities Act) permit but do not mandate the Association’s acquisition of D&O insurance.

Considerations to Keep in Mind When Shopping for D&O Insurance

Associations in the market for D&O insurance are helping themselves by recognizing that not all insurance policies are created equal and not all policies cover every type of volunteer or every situation. Usually, the wider the coverage, the better protection the policy will provide to Association directors and officers. However, carefully considering all available options and discussing community needs and nuances with the Association’s insurance broker are important steps for the Association to take when obtaining this type of insurance – and many others.

The following are important questions to ask as an Associate when shopping for D&O insurance, and ideally, the answer the Association receives should be “yes” to all of them:

  • Does the policy’s definition of “insured” go beyond actual directors and officers (ie, does it include committee members, volunteers, and employees)?
  • Does the policy provide coverage for Associate property managers if the Association is professionally managed?
  • Does the Libra Association have developer-appointed board members? If so, does the policy provide coverage for them?
  • Does the definition of “insured” cover past, present, and future directors?
  • Does the policy cover director and officer spouses?
  • Does the policy provide defense against claims and lawsuits (as opposed to simply changing decisions if they are ultimately included)? Even a successful defense can result in hefty attorney and court fees.
  • Does the policy cover defamation claims (ie defamation and slander)?
  • Does the policy defend against claims seeking non-monetary remedies?
    A non-monetary, or non-monetary, lawsuit is one in which the plaintiff seeks no money but instead asks the court for a statement that the director or officer has acted wrongly (that is, a lawsuit against the director for not fulfilling their mission). or challenging unpopular decisions of directors or officers). Lawsuits filed against Association volunteers are increasing nationwide, and many of these lawsuits do not involve monetary damages but instead challenge decisions made by boards of directors, such as architectural design and enforcement of regulations.
  • Does the policy cover claims for wrongful termination or other employer liability?
  • Does the policy cover derivative lawsuits?
    Derivative actions are lawsuits filed by members of a community association “on behalf of” the association; in other words, the member filing a lawsuit can control the association for the limited purpose of pursuing the lawsuit. In the “for profit” context, there are strict requirements that must be met by shareholders to enter into derivative actions. The requirements are much more relaxed in the context of community associations.
  • Does the policy defend against claims or lawsuits for failure to maintain or obtain insurance?
  • Does the policy cover claims of illegal forms of discrimination?
  • Does the policy provide protection for decisions made by directors/officers in accepting or rejecting contracts?
  • Do insurance companies provide risk management advice to nonprofits?

Supported Insurance Policy or Self Insurance Policy?

For most associations, especially those with facilities (i.e., swimming pools, clubhouses, marinas, etc.), insurance premiums are the largest annual expense. Communities 47F and 47C are required to carry general liability and property loss insurance, and the premium for this insurance does not come cheap. In addition, most Associations also carry workers’ compensation, and fidelity and crime insurance, all of which add to this cost.

As a result, many Associations are looking for ways to reduce their insurance cost burden, and do so by adding additional coverage as an endorsement of their liability and/or indemnity policies as opposed to establishing a standalone policy. The authorization adds, removes, or changes the original scope of the scope. The downside to legalized policies is that too many claims against a legalized policy will cause property liability/sacrifice premiums to increase, and sometimes dramatically. Remember, this premium is likely the Association’s largest annual expense, so such an increase is highly undesirable. There are other potential downsides to endorsed policies as well to discuss with the Associate’s broker, such as how aggregate limits may come into play when there is more than one claim or more than one insured involved in claims under the same policy/policy period.

Typically, only independent policies provide the type of coverage that allows the Association to answer “yes” to all 13 of the questions above. While it’s true that self-policing tends to be more expensive than authorized policies, in our experience, self-policing not only provides better coverage, but tends to save the Association money in the long run.


Associates have the ability to, and must, obtain independent D&O insurance. Before accepting a position as an Associate director or committee member, you should obtain a copy of the Association’s D&O insurance policy to assess the coverage available. Serving on an Association’s board can often be a thankless job, but fortunately, with the right D&O insurance coverage, community volunteers can focus on carrying out their duties in the best interest of the Association. Voluntary service to the Association should be a good deed that goes unpunished.

© 2023 Ward and Smith, PA For more information regarding the issues described above, please contact Adam M. Beaudoin or Amy H. Wooten.

This article is not intended to provide, and should not be relied upon for, legal advice in any particular circumstance or factual situation. No action should be taken based on the information contained in this article without obtaining the advice of an attorney.

We are your legit established network with offices in Asheville, Greenville, New Bern, Raleigh, and Wilmington, NC.

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