When Kevin Davis started with Chubb in 1981, there was no directors and officers (D&O) insurance. At the request of the Community Associations Institute and with the help of Ian H. Graham, Davis helped develop a program, which eventually was offered in 1984. The idea, he says, was to cover the "emotional claims" so prevalent in community association life.
"We knew when we started this that the claims were much more emotional than economic," recalls Davis. "They weren't so much economic as quality of life." For the next 15 years, Chubb would write about one out of every three D&O policies in New York City, totalling some 50,000 policies nationwide.
What does this have to do with the evolution of boards? Quite a lot, say industry experts. In the beginning there was confusion. Boards were handed multi-million-dollar corporations to run and given little instruction on how to do so. No one understood the expenses or the risks.
"Being on a co-op board was a new responsibility in the 1980s," notes Herb Cooper-Levy, executive director of RPG Housing and a long-time housing consultant. "There were legal issues, liabilities, responsibilities, and no good regular source of information for boards. Lawsuits were the most in-your-face example of what that meant. You became the flashpoint of the community, the symbol of authority."
Because of that, boards had to evolve. More laws came into place, more responsibility kept coming up, so boards needed to be able to pull themselves away from small issues and manage the property. When they did, they saw what D&O coverage was and the two changed together.
"In the 1980s, it was Swiss cheese coverage," recalls Robert Mackoul, president of Mackoul & Associates, an insurance broker. "But then, as the industry grew, the picture grew. D&O got better and the boards got better. Everyone became more focused and the sophistication of all the parties increased." Premiums, he adds, even decreased in the following years as more and more competition arose, a trend recently reversed.
And then, just when the relationships seemed to be working, boards got a wake-up call: the 1994 and 1999 indictments of dozens of managing agents, contractors, and board members. "Boards now couldn't trust the property manager to make the right decisions all the time," Cooper-Levy notes. "And there wasn't just one wake-up call. There were two. Are you awake yet?"
The biggest factor in handling each problem as it has arisen is education. For the most part, this has meant that fewer "dumb" claims are made because boards are making better decisions — not emotional ones.
The past 10 years have seen a significant increase in the number of discrimination suits and in the severity of claims, as well. While the majority of suits never make it to court, boards expend tremendous amounts of money fighting such suits. Mackoul estimates that, at any given time, 15 to 25 percent of the co-ops he insures are involved in litigation. Boards, with a bull's-eye on their backs, have had to learn again. Since the shareholder has gotten smarter, too, chances are the board's evolution will continue.