Q: I currently serve on the board of my condominium association and am running to serve for another year. With the new statutes passed last year, for the first time I have been asked to sign a certification form stating that I have read and understand the statutes and declaration of condominium for my community. Also, our condo association attorney informs us that there are new provisions in the Condominium Act that appear to require new duties for association directors. The condo board president tells me that I should not be worried because the condo association carries directors and officers liability insurance. My question is, how much directors and officers liability insurance is enough, and what happens if somebody makes a claim against the directors in excess of the directors and officers liability policy limit? I enjoy serving on the condominium board, but I certainly do not want to put any of my personal assets at risk. N.N. (via e-mail)

A: You are correct that many new provisions were added to the Florida Condominium Act in 2008. It is not clear yet what the legal effect of the changes regarding a director's liability will be. As you probably know since you have served on the condo board previously, directors have always had a fiduciary duty to be reasonably well informed and to investigate and make a good faith evaluation of issues before voting. Directors have also always been required to keep reasonably apprised of association activities. Therefore, from one point of view, nothing has changed with the new statutes except that previously existing fiduciary duties have been expressly codified in the Condominium Act.

The new provisions in the Condominium Act concerning a director's duty of care are basically the same duties that have been found in the Florida corporate statutes for many years. Only time and perhaps some appellate court decisions will tell whether the new certification requirement for condo board directors, or the inclusion of director and officer liability standards in the Condominium Act, change existing condo law.

The answer to your first question is that the condo board should consult with the condo association insurance broker/agent as to the appropriate amount of directors and officers insurance coverage (usually referred to as the D&O policy). A million dollars coverage is probably the bare bones minimum. It is my understanding that coverage of three million, or even five million, can be obtained for a modestly higher premium. Obviously, the size of your association and the nature of your operation has some bearing on risk and the best balance between coverage and cost control.

In answer to your second question, the Florida statutes permit the bylaws of the association to contain comprehensive indemnification provisions which could become extremely important should insurance coverage not be adequate to cover a claim against you arising from board service. You may want to ask the board to check with the association's counsel to ensure that your bylaws contain thorough indemnification provisions. If a claim against a director exceeds the amount of insurance coverage, indemnification means that the entire community essentially acts as your insurer. However, there will likely be no insurance coverage and no right to indemnification in the event criminal action, fraudulent acts, or if willful or reckless misconduct or self-dealing is established.

What is D&O Insurance?

It is common to see that the association manager has been left off the D&O coverage in a condo association insurance or HOA insurance policy. On most condo association insurance policies, this is not fixed by a typical additional insured endorsement as it is with general liability coverage. They normally charge extra premium and ask additional questions about the association manager to allow for the D&O coverage. This is important coverage because an error of communication can create a situation where this type of suit can happen.

An example of this is when the board has put condo rules in place where late pays will not be tolerated. If you have been late two months in a row, they will begin legal proceedings against the owner. If, for example, the first month the owner pays late by a few days and the next month he is accidentally left on the list of delinquent owners, the board will file suit against the owner. The owner will counter-sue for defamation of character. Without the condo association manager being named to the D&O coverage, there will be no condo association insurance or HOA insurance coverage for the claim.

Every director and officer of a homeowner association board has personal responsibility for HOA business. The basic purpose of Directors and Officers insurance is to protect directors and officers from claims made because of wrongful (or allegedly wrongful) acts or omissions made while acting in their individual or collective capacity on behalf of the homeowners association.

General liability insurance will not protect directors and officers in the same way. This insurance is to cover against third party bodily injury and property damage. Directors and Officers insurance covers against third party financial damages and other claims not covered under General liability.

Here's a list of scenarios in which directors and officers have liability:

What is a condo association master insurance policy?

Directors and officers liability insurance: Usually called D&O insurance or E&O (errors and omissions) insurance, this is one of the most important policies for the condo association or HOA. The purpose of the D&O policy is to provide coverage in a defense (a lawyer) if a suit is brought against the condoassociation (other than for personal injury) or its condo board directors. I do not believe anyone in her right mind would serve on a condo association board or HOA board that did not have D&O coverage, and I strongly believe it should be mandated through the declaration of condominium, not a permissive decision to be made from time to time by the condo board of directors or property manager.