The association governs a forty-unit condominium building in Bellevue built in the late 1990s. A reserve study and an inspection found water intrusion in the building envelope, and the volunteer board approved a large special assessment to repair it.
One owner, who believed the repair was unnecessary and the contractor overpriced, hired an attorney and threatened to sue the board members individually. The board president called us the next day.
What they asked for
Whether the association's insurance protected board members personally.
What the review found
D&O existed, but at a low limit. The association's master policy included directors and officers coverage at a limit set years earlier. A dispute over a large assessment, with legal fees on both sides, could consume it quickly.
The D&O form had a gap for construction decisions. Some association D&O policies exclude claims arising from construction defects or repairs. The board's most controversial decision was a construction decision.
The building was underinsured. Washington's condominium laws require associations to carry property and liability coverage, and the master policy's building limit was based on an old appraisal. Rebuilding costs had risen sharply.
No umbrella. A serious injury on common areas could exceed the master policy's liability limit.
What we put in place
We replaced the D&O with a policy written for community associations, with a higher limit, no exclusion for decisions about repairs, and coverage for defense of claims alleging breach of fiduciary duty by board members. The existing threat was reported to the prior carrier promptly, which is critical: D&O is a claims-made coverage.
We ordered a new replacement cost appraisal and updated the master commercial property policy, and we reviewed the deductible, since owners can be assessed for it after a loss.
We added a commercial umbrella at $5 million over the association's general liability, auto, and D&O where the carrier allowed.
We also recommended the board adopt a written reserve policy and document every major repair decision with the professional reports it relied on, which strengthens any D&O defense.
Why it mattered
The owner filed suit. The prior carrier accepted the claim and appointed defense counsel. The case was dismissed after the board showed its decision was based on the engineer's report and the reserve study. For the next board decision, the association has limits and a form built for exactly this kind of dispute.
If you serve on a condo or HOA board
- Check your D&O limit and whether it excludes repair and construction decisions
- Report any threatened claim to the carrier right away
- Update the building's replacement cost with a current appraisal
- Document decisions with the professional reports behind them
See how we work with real estate owners, or get a free policy review for your association.