Q. If the Board, or individual board members in our association are sued, we are told that the D&O insurance takes some time to kick in. The problem is that significant legal expenses could be incurred prior to the D&O coverage. Can the Association legally cover these expenses until the individual director(s) has insurance coverage?
A. Yes, it would likely be proper for the Association to temporarily cover legal expenses for a director, provided that the director was sued in his or her capacity as a board member and was otherwise acting in good faith. In most cases, the Association has the duty to indemnify or protect directors from personal liability related to their service on the board. Further, D&O insurance coverage should be provided by the association not only to cover the legal expense and damage caused by a lawsuit, but also to encourage homeowners to serve on the board without fear of personal liability or exposure to these lawsuits. If any directors are served with a lawsuit related to their service on the board, the summons should be immediately forwarded to the association’s legal counsel for timely response and the D&O insurance carrier should also be promptly notified.