In our specialized, yet pluralistic world, where the interestsand needs of people from many walks of life overlap in surprisingways, the numbers and range of activities of nonprofitorganizations continues to grow.

In addition to charities like the United Way or Red Cross,health delivery groups run as nonprofits, disease or disorderdedicated information and advocacy groups, religious organizations,educational and charitable foundations, there are homeowners andcondominium association boards, charities sports leagues andcommunity action groups.

On the one hand, organizations are “filling in the gaps” to meetneeds the local neighborhood or extended family once did, while amore sophisticated American populace seems to have more interestsor causes to embrace than ever before.

On the other hand, there is a sincere desire for well-meaningpeople, including professionals and business executives, to giveback to society in the form of volunteer activities–or for peopleto have a say in areas that impact their lives.

Perhaps nowhere else is the motivation for getting involved sostrong as with boards of directors of nonprofit homeowners andcondominium associations, an important and growing segment of thefor-profit and nonprofit D&O marketplaces.

We place great emotional and financial stakes in our residences.So who wouldn't want to get involved in one's homeowners orcondominium association in order to build a better community, helpmaintain and enhance property values, have a say in how things aremanaged, or just as a way to meet one's neighbors?

But the directors and officers of these nonprofit associationboards could pay a steep price for good citizenship if a lawsuitcomes calling and the board does not have the proper insurancecoverage in place.

As in other situations involving nonprofit organizations, wefind time and again that volunteers–even those highly educated orsophisticated in other walks of life–do not understand the risk ofliability and litigation they are taking on. And they may not actquite as wisely or carefully in their “free time” as volunteers asthey do when they are in their professional environments.

Knowing too little and knowing too much can both be hazards.

The community agent has a vital role to fulfill as risk managerand preventive insurance counselor with respect to nonprofithomeowners and condo association boards. In studying thesecoverages, it is important to note the common exposures in thisclass, as well as guidelines for writing this book of business,which can be profitable for both underwriters and agents.

The housing boom, one of the drivers of our economy in recentyears, has brought about an accompanying boom in homeowners andcondominium associations. Furthermore, these associations have moretasks and responsibilities–and more complex ones–than everbefore.

As suburbia marches ever outward, shared property and amenitiesin subdivisions grow apace. The “good life” can include swimmingpools, tennis courts, fancy club houses, walking trails andlandscaped paths–even internal roads and secured entry points.Because of these features, a great percentage of all new homesbeing built today–not just condominiums–will require a homeownersassociation and board of directors.

In other, older areas, urban revitalization has upgraded theresidential stock of many cities and downtowns in the form oflofts, condominiums and other “shared structure” owner-occupiedhousing. Condominiums have become an important component of mostmaster-planned town centers, whether all-new or rehabilitatedconstruction.

What is the greatest source of potential litigation againsthomeowners and condo association board directors and officers?

Undoubtedly, it is the people–their likes and dislikes,personality conflicts, differing opinions about how to run theassociation, how maintenance and management monies are spent, aswell as divergent views on rules and regulations.

This is where we live. This is home turf.

And people running for and being elected to such boards are notalways well- versed in running associations, leading to frequentdisputes regarding bylaws and covenants.

o Hard-wiring. Condo association boards, in particular, will beresponsible for the common structures of a condominium and, for themost part, will be more involved in issues akin to propertymanagement and asset preservation.

Therefore, charges against directors and officers can involvesuch issues as responsibility for repair and maintenance of condostructures, failure to properly assess members and maintainadequate funds, negligence in hiring contractors, or failure tomaintain property value.

For example, suppose a board hires a contractor to replace orrepair balconies on properties, and the work is later found to bedefective. The board could be charged with negligence in thehiring. Disputes, including charges of kickbacks, also commonlyarise when relatives or business relations of a board member arehired by the association.

A board could also be charged with not properly insuring thecondominium property, including exceeding deductible limits in anattempt to save on property insurance.

o People do things. In the modern, upscale subdivision, moreactivities mean more things to supervise and more potential forclaims against an association. While general liability would be theprimary line of insurance defense in most instances (e.g., slip andfall), a board is always liable to a claim of not having actedprudently.

This situation points up the value of writing general liabilityand nonprofit directors & officers as a package, which shouldprovide seamless coverage for any homeowners or condoassociation.

The scale and character of new residential communities shouldencourage caution–for boards and their insurers. The presence oflarger and more highly valued homes within a community, gatedcommunities, communities with extensive internal roadways and thelike, all increase exposures in areas like security, emergencyresponse or privacy rights. In fact, municipalities and statelegislatures have recognized these dynamics with increasingregulatory vigor.

Still, homeowners and condominium associations present feweraggravations than many other categories of nonprofit D&O policywriting. Among the reasons:

o Fewer employment issues. These boards generally employ fewstaff, meaning less potential for sexual harassment or employmentdiscrimination claims, including those that so often arise fromintermediary management in an organization.

o Fewer service/funding issues. There are generally fewer (orno) issues of providing services to the public, as for example withmany health-related nonprofit organizations or a scholarship fund.Also, for the most part, federal, grant or donated monies are notbeing spent, although a residential community could conceivablyqualify for modest municipal beautification and fix-up grants, orthe like.

o Behavior Surprises Minimized. The board members and their“public” of subdivision or condominium residents are generallyknown to each other, which should mean fewer surprises in behavior,as well as the conforming power of neighbors. This has beensomewhat contradicted in recent years by the scale of manyresidential communities.

o Predictable Claims. This is a well-established class ofD&O business, with many predictable aspects in terms offrequency and nature of claims.

Regardless, agents writing D&O coverage for homeowners andcondo associations do need to watch several key points, like makingsure bylaws comply with relevant state laws and investigating thepresence of prior and pending claims. A related article sets fortha partial checklist for agents to consider.

Overall, it has been estimated that as many as half of condo orhomeowners associations may be involved in a lawsuit of some kindat any given time. Accordingly, agents have an important role inhelping these associations meet their nonprofit D&O coverageneeds.

As noted before, we strongly recommend writing condominium andhomeowners association insurance as a package that includes generalliability coverages. This mitigates against someone crafting alawsuit that slips between the general liability and nonprofitD&O coverage cracks.

“Water-tight” nonprofit D&O coverage for board directors andmembers serves a valuable purpose. With an agent's guidance, ithelps encourage quality people to serve on these boards, ratherthan shying away from fear of litigation.

The education process may also deter invitations to litigationby co-board members or by residents familiar with board politicsand thinking. In this way, homeowners and condo associations canhave a positive impact on the daily lives and property values ofhomeowners.