Directors, Take Cover

Directors, Take Cover

Residentsline argues the case for Directors & Officers insurance policies

Property magazines often prompt readers to review their insurance cover to ensure sufficient financial protection is in place should the unthinkable happen (see previous article). But how often do you consider the risks associated with your role as an RMC director or committee member? You are probably aware of what can be described as your 'criminal liabilities'. For example, to make sure proper accounts are maintained and returned on time. But have you ever considered your civil liabilities to both your company and third parties?

It is a commonly held misconception that your role within a company or sitting on a committee as a volunteer is protected. This is not the case. Your decisions and those of your fellow board or committee members could end up costing you everything you own. You don't even need to have done anything wrong to be faced with legal costs. If you are accused of something that has no foundation, you may still have to take legal advice and defend yourself and if you have ever had dealings with a lawyer you will know that their services do not come cheap.

What happens if you have acted in good faith to resolve a problem, yet you are accused of exceeding your authority and of having committed funds when you were not entitled to do so? And what happens if someone accuses you of negligence in conducting the affairs of the company and warns they are seeking legal advice? The fact is, as a director or an officer of a company, you hold a position of trust. You are personally liable for any act, which is negligent, beyond your powers in breach of that duty or trust. Furthermore there is no limit to your liability and there is also the possibility of legal costs to defend your good name.

Admittedly there have not been too many cases of directors or officers of residents associations or property management companies being taken to court.

Insurance claim: Beware cowboy builders

A committee member pays a contractor to fix their roof with RMC funds before the works have started. subsequently, the contractor absconds with the money, never to be seen again. There is an exposure to potential legal action being brought by the individual flat owners following the loss of RMC funds due to a mistake made by an RMC member.

But the formation of such companies is still a relatively new phenomenon and with the taste for litigation growing at an alarming rate, chances are that such cases will escalate. Claims already made include a neighbour who sued a director because the value of his flat fell: the neighbour claims the drop in value was due to the director's inadvertent failing to identify and rectify external repairs. In another case, a tenant held a director responsible for the poor workmanship of external contractors who had been engaged to repoint the external walls. The purpose of a Directors & Officers (D&O) insurance policy is to provide defence costs and/or compensation for civil liability claims arising from the wrongful act of a director or officer in the running of a company. A wrongful act is normally defined as any actual or alleged breach of trust or warranty; neglect; error; omission; misstatement or misleading statement. A range of limits of indemnity may be chosen, which will include payment of costs and most policies will cover present directors and officers, former directors and officers and future directors and officers. Cover also applies to spouses, heirs or legal representatives in the event of the death, bankruptcy or insolvency of a director or officer.

All RMC directors should make it a priority to ensure that, having looked after everyone else, they now spend some time looking after themselves. D&O cover is widely available and offers comprehensive cover at a relatively low cost. Specialist underwriters are available to offer you this protection, so consult your broker for further advice and a quote.

Insurance claim: The dangers of ignoring defects

Consider the potential exposure that may exist if an RMC member fails to assess the number and extent of defects within a building, compounded by the fact that the RMC member fails to lodge a claim within the time constraints of the NHBC framework. Funds required to rectify defects are no longer available but could have been covered by the NHBC guarantee. Once again there is an exposure to potential legal action being brought by the individual flat owners due to an error on the part of an RMC member.

Residentsline can be contacted at: - 0800 281235

View Residentsline's Directors & Officers Liability Isurance summary of cover and premium examples here

This article can also be viewed in Issue 18 of Flat Living Magazine