Academy/Board Authority & Fiduciary Duties
Directors & Officers insurance
The policy that covers a board member being sued over a decision, not an injury.
Directors and officers (D&O) insurance pays legal defense costs and damages when someone sues a board member over a governing decision, not over an injury or property damage. It typically excludes fraud, self-dealing, and criminal conduct. No federal rule requires it, though some states tie its minimum amount to a director's personal liability protection.
What D&O insurance actually covers
Board members get sued over decisions, not just injuries. D&O insurance is the product built for that: it responds when someone sues a director or officer over a governing decision, alleged mismanagement, or another wrongful act in running the association, and it pays defense costs along with any damages owed.
"D&O insurance protects directors, officers, and sometimes other volunteers of a community association from lawsuits alleging mismanagement or wrongful acts."
Source: D&O Insurance: The What, Why, and Who for Community Associations, Associa
That is a different job than the association's general liability policy, which pays for bodily injury or property damage, the kind of harm a slip and fall or a falling tree branch causes, not the kind of harm a bad board vote causes.
What it typically excludes
The exclusions are not an accident. D&O coverage is written to exclude exactly the conduct fiduciary duty already forbids: fraud, personal gain, and criminal activity, so the policy insures honest mistakes, not deliberate wrongdoing.
"Claims arising from fraudulent or dishonest acts committed by board members are typically excluded."
Source: Advising Community Associations on D&O Coverage: Limits and Exclusions, Kevin Davis Insurance Services
The same policy stays out of general liability's lane too: it does not cover bodily injury or property damage claims, those go to the association's general liability policy instead. Coverage limits vary by carrier and community; one insurance broker describes a typical market range of $1 million to $5 million, though that figure describes common practice, not a legal minimum.
Is it required by law?
No federal statute requires an association to carry D&O insurance. The belief that Fannie Mae requires it for mortgage eligibility is common and wrong: Fannie Mae's project eligibility rules set minimums for general liability insurance and for fidelity and crime insurance (coverage against theft of association funds), but that chapter of its Selling Guide does not mention D&O insurance at all.
"At least $1 million for bodily injury and property damage for any single occurrence."
Source: Selling Guide B7-4-01: General Liability Insurance Requirements for Project Developments, Fannie Mae
Some states go further than treating D&O coverage as merely recommended. California conditions a volunteer director's own personal liability protection on the association carrying general liability and D&O insurance at a set minimum, scaled to community size. Check whether your state ties D&O coverage to a director's own immunity, and what your governing documents or board policy separately require.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
An owner sues the board, alleging directors approved an unwise reserve fund investment that lost money. No fraud is alleged, and nothing was stolen. Which coverage is designed to respond?
The treasurer is found to have secretly diverted association funds into a personal account, and a lawsuit follows. The board asks its D&O carrier to cover it. What happens?
A board president tells fellow directors the association cannot get Fannie Mae mortgage approval for the community unless it buys D&O insurance. Is this correct?
Sources
- D&O Insurance: The What, Why, and Who for Community Associations, Associa
- Advising Community Associations on D&O Coverage: Limits and Exclusions, Kevin Davis Insurance Services
- Selling Guide B7-4-01: General Liability Insurance Requirements for Project Developments, Fannie Mae
- Selling Guide B7-4-02: Fidelity/Crime Insurance Requirements for Project Developments, Fannie Mae
- California Civil Code § 5800, California Legislature
Related elsewhere in the Academy
Board Authority & Fiduciary Duties
Want to know what happens to a director personally if a lawsuit gets past every layer of coverage? Read Personal liability of board members next.
Whether your association is required to carry D&O insurance, at what minimum amount, and whether that amount affects an individual director's own personal immunity, varies by state and by your governing documents. Check your declaration, bylaws, and current insurance policy, or ask your insurance broker to confirm what your specific coverage actually excludes.