I was in court today, involved in a dispute about (among other things) inadequate unit owner access to association records and inadequate insurance. In response to my claim that the Association had no fidelity bond (as the Declaration required), the opposing counsel waived the Association's Directors and Officers policy, arguing that its coverage was "the same" as that provided by a fidelity bond.
He's wrong. I may need to hire an expert to testify to that, but you don't need to. Ask your Association's competent community association insurance agent, and they'll tell you that the two policies are entirely different, and that your Association needs both.
A fidelity bond (sometimes called fidelity insurance, but often referred to in governing documents as a bond) provides coverage for "loss of money, securities, or any other property due to acts of dishonesty committed by an employee acting alone or in collusion with other persons..." Directors and Officers coverage, on the other hand, provides coverage for "mismanagement or [intentionally] wrongful acts." The covered wrongful acts may have been intended, but if the intent was to steal from the Association, the Directors and Officers will not be there to help.
Lesson for today: Your Association should have Directors and Officers and fidelity coverage. If your insurance agent tells you otherwise, it's time to find a new insurance agent. Look at the resource directory at the UCCAI web page for a list of agents specializing in community association insurance.
And if your attorney tells you otherwise, you know where to find a new attorney. ;)
Lincoln - Your comments are right on target. Fidelity bond, aka employee dishonesty insurance and directors & officers, differ in their scope of coverage as much as football differs from baseball.
ReplyDeleteRegarding D&O coverage, if the association has a separate or stand alone policy, it may cover the defense cost for a failure to maintain insurance lawsuit. In which case only the defense cost is covered for the association and not a judgment. For example, I represent two exceptional D&O policies that provide defense coverage if the suit involves failure to maintain insurance or something along those lines. However if a judgment is ruled against the association/board for it’s breach of fiduciary duty in obtaining say “employee dishonesty” insurance, the D&O policy will at that time discontinue defense payments. It will not pay a judgment against the board or association for the loss. In the case you reference, the odds are slim to none that the association carries one of the few exceptional D&O policies available that contains this kind of protection for the board members and associations.
As a last note on D&O policies, it is very important that the insurer be put on notice any time a written demand or threat is made against the association or its board. Not doing so could nullify coverage under the policy because it failed to give the insurer timely notice, which most policies require. If the opposing counsel has not notified the carrier for that policy he was waiving in court they may find they have even more problems. – LaMond Woods Community Risk Manager with SentryWest Insurance.
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