The association board members themselves can be named in lawsuits.

A Homeowner's Association (HOA) is made up of a group of volunteer homeowners. It's often a thankless task, where the only guaranteed reward is knowing they've helped maintain and improve the value of their neighborhood. The last thing your volunteer board members deserve is a personal financial loss as a result of their participation.

It's why community associations absolutely must carry liability insurance. Lawsuits filed against HOAs and other community associations are a common occurrence. Often, one or more of the board members are named in the suit, too. The overall liability insurance policy an association carries covers lawsuits and medical expenses filed by people who are injured in the common areas maintained by the association. While that's important, there's a component of protection that's even more crucial.

Individual association board member liability

Take a deep breath and relax if you're a new HOA member. Lawsuits against individual board members are difficult to advance in court. In most cases, a lawsuit is brought against the community association as an entity. It's not easy to prove the cause of the suit was the responsibility of a specific board member—unless there is sufficient evidence that the board member knowingly breached their fiduciary duties.

Nevertheless, it's no reason to be lax in making sure your association has adequate liability insurance. There will still be legal costs involved. You'll need your attorney's assistance with the process.

Directors and Officers liability coverage

Directors and Officers (D&O) coverage is the part of the HOA liability insurance policy that protects board members themselves. It covers legal expenses that result from a lawsuit that names an individual board member.

Don't assume your association insurance coverage includes this, or that it is adequate coverage. Task your insurance representative with making sure this important protection is in place and up to date.

What's covered?

The last thing you want to discover is that your assumptions of coverage are incorrect. D&O insurance policies typically cover all board members. Is a member of your board a non-owner? Check to see if the policy covers them.

Some D&O policies cover community association employees, such an administrative assistant. If you have a large HOA with extra volunteers who form committees, they also might be covered. Don't make any assumptions. Find out.

What's excluded?

Generally, a D&O policy pays for the legal costs and fees to defend your board members against legal actions. It also pays any judgement amount. Go over the details of the policy. Regardless of whether the lawsuit goes to court, the board member will still have to retain legal counsel. The D&O policy may only cover this if the case goes to court and there's a final ruling.

It's also important to know when the coverage will be paid. A board member will have to foot the bill out of their own pocket if your policy only reimburses after the conclusion of the case.

And, like most insurance policies, there will be monetary limitations to coverage. You owe it to your volunteer board members to let them know the extent of coverage they have. The D&O policy might also exclude certain types of claims. It might cover a board member's breach of fiduciary duty—but the protection may not include negligence.

Look at the value

It's easy to look at association liability insurance as an expense. After all, your association has to write a check for it. So, it's also easy to search for ways to reduce the cost of maintaining HOA liability insurance by skimping on coverage. Do you really need to make sure your D&O policy also covers committed volunteers?

A single lawsuit against a board member, an employee, or anyone acting on behalf of the community association (such as members of a committee), can easily cost thousands of dollars in legal fees and court costs. That dollar figure becomes exponential if there's a damage award. Even if the lawsuit is dropped, there'll still be attorney's fees to pay.

The liability policy payment gets entered on your books as an expense. Consider it an investment.