In our specialized, yet pluralistic world, where the interests and needs of people from many walks of life overlap in surprising ways, the numbers and range of activities of nonprofit organizations continues to grow.

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

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

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

Perhaps nowhere else is the motivation for getting involved so strong as with boards of directors of nonprofit homeowners and condominium associations, an important and growing segment of the for-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 or condominium association in order to build a better community, help maintain and enhance property values, have a say in how things are managed, or just as a way to meet one's neighbors?

But the directors and officers of these nonprofit association boards could pay a steep price for good citizenship if a lawsuit comes calling and the board does not have the proper insurance coverage in place.

As in other situations involving nonprofit organizations, we find time and again that volunteers–even those highly educated or sophisticated in other walks of life–do not understand the risk of liability and litigation they are taking on. And they may not act quite as wisely or carefully in their “free time” as volunteers as they 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 manager and preventive insurance counselor with respect to nonprofit homeowners and condo association boards. In studying these coverages, it is important to note the common exposures in this class, 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 recent years, has brought about an accompanying boom in homeowners and condominium associations. Furthermore, these associations have more tasks and responsibilities–and more complex ones–than ever before.

As suburbia marches ever outward, shared property and amenities in subdivisions grow apace. The “good life” can include swimming pools, tennis courts, fancy club houses, walking trails and landscaped paths–even internal roads and secured entry points. Because of these features, a great percentage of all new homes being built today–not just condominiums–will require a homeowners association and board of directors.

In other, older areas, urban revitalization has upgraded the residential stock of many cities and downtowns in the form of lofts, condominiums and other “shared structure” owner-occupied housing. Condominiums have become an important component of most master-planned town centers, whether all-new or rehabilitated construction.

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

Undoubtedly, it is the people–their likes and dislikes, personality conflicts, differing opinions about how to run the association, how maintenance and management monies are spent, as well 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 not always well- versed in running associations, leading to frequent disputes regarding bylaws and covenants.

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

Therefore, charges against directors and officers can involve such issues as responsibility for repair and maintenance of condo structures, failure to properly assess members and maintain adequate funds, negligence in hiring contractors, or failure to maintain property value.

For example, suppose a board hires a contractor to replace or repair balconies on properties, and the work is later found to be defective. The board could be charged with negligence in the hiring. Disputes, including charges of kickbacks, also commonly arise when relatives or business relations of a board member are hired by the association.

A board could also be charged with not properly insuring the condominium property, including exceeding deductible limits in an attempt to save on property insurance.

o People do things. In the modern, upscale subdivision, more activities mean more things to supervise and more potential for claims against an association. While general liability would be the primary line of insurance defense in most instances (e.g., slip and fall), a board is always liable to a claim of not having acted prudently.

This situation points up the value of writing general liability and nonprofit directors & officers as a package, which should provide seamless coverage for any homeowners or condo association.

The scale and character of new residential communities should encourage caution–for boards and their insurers. The presence of larger and more highly valued homes within a community, gated communities, communities with extensive internal roadways and the like, all increase exposures in areas like security, emergency response or privacy rights. In fact, municipalities and state legislatures have recognized these dynamics with increasing regulatory vigor.

Still, homeowners and condominium associations present fewer aggravations than many other categories of nonprofit D&O policy writing. Among the reasons:

o Fewer employment issues. These boards generally employ few staff, meaning less potential for sexual harassment or employment discrimination claims, including those that so often arise from intermediary management in an organization.

o Fewer service/funding issues. There are generally fewer (or no) issues of providing services to the public, as for example with many health-related nonprofit organizations or a scholarship fund. Also, for the most part, federal, grant or donated monies are not being spent, although a residential community could conceivably qualify for modest municipal beautification and fix-up grants, or the like.

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

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

Regardless, agents writing D&O coverage for homeowners and condo associations do need to watch several key points, like making sure bylaws comply with relevant state laws and investigating the presence of prior and pending claims. A related article sets forth a partial checklist for agents to consider.

Overall, it has been estimated that as many as half of condo or homeowners associations may be involved in a lawsuit of some kind at any given time. Accordingly, agents have an important role in helping these associations meet their nonprofit D&O coverage needs.

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

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

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

Special Reports /

Nonprofit D&O Essential For Homeowners, Condo Association Boards

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