When the dust had settled after the partial collapse of Champlain Towers South in Miami earlier this year, the story that emerged was one of total disarray inside the condo board.
Although the board had called for structural repairs back in 2018, those repairs were to be paid for through special assessments imposed on the owners. Five of the seven board members resigned over the issue but the repairs were never scheduled.
As a result of those decisions, the condo building’s board members can actually be sued for decisions they made on behalf of the homeowner’s association (HOA). In fact, several dozen lawsuits have been filed against the HOA and the board of the Champlain Towers. And any other condo association facing a disaster can be held responsible for a decision that left the condo at risk.
What’s more, in today’s litigious environment, it’s not hard to imagine a scenario in which a series of lawsuits filed against HOA board members and regulatory investigations could quickly surpass the limits of the building’s property and casualty (P&C) and directors and officers (D&O) coverage. And for those boards that are lacking appropriate D&O coverage, each individual board member’s personal assets may be at risk.
When it comes to condo boards of directors, it’s important to consider all angles. Protecting your board of directors is critical, and D&O coverage is just one component of that.
A Changing D&O Landscape
In the coming months, the D&O insurance landscape is expected to change in several ways, including:
1. Expect far tighter underwriting. Boards preparing for renewals will have to make themselves an attractive risk to insurers. Underwriters will be looking for healthy reserve funds and may decline to cover buildings without adequate reserves. They are also likely to scrutinize individual board members, looking carefully at their experience, their decision-making abilities and their financial acumen. Insurers may deny D&O coverage to boards that aren’t up to par.
2. Qualified board members will be scarce. Ontario began to require training for new board members back in 2017, but this measure seems to have encouraged inexperienced candidates to apply for the positions. While the training does help, it can’t compete with years of experience or an appropriate management background. Meanwhile, existing, experienced board members, knowing they may be held personally responsible for poor decisions, may possibly reconsider their positions.
Matthew Studley, CFA, is senior vice president, complex risk, for global insurance brokerage Hub International. He is a recognized expert in financial risk management, executive liability and the mitigation of specialty risks through insurance and insurance-linked securities. He consults on a variety of liability matters and risk transfer options, and advises clients on corporate governance issues, investor lawsuits, regulatory investigations and claims management.
Dru Douglas is an account manager for the Ontario region for global insurance brokerage Hub International. He specializes in insurance and risk solutions for the office, retail, industrial and multi-family sectors of commercial real estate.
