Kathryn Farrell in Board Operations on December 12, 2019
Co-op and condo boards are finding that the cost of directors and officers liability insurance is rising. The reason? D&O claims have been steadily increasing.
Emil Samman, a partner at the law firm Romer Debbas who defends boards from D&O claims, says that the number of claims his firm is handling has noticeably risen over the last two years. Brokers and attorneys agree that there has been a marked jump in claims brought under the Americans With Disabilities Act – specifically by shareholders and unit-owners trying to win board approval of emotional-support pets in no-pet buildings.
“If a board is sued for failing to allow an emotional-support animal and they're found to have discriminated against the disabled person, the insurance company will pay the legal fees to defend the claim,” says Robert Braverman, partner at the law firm Braverman Greenspun. Those legal costs can quickly outstrip D&O premiums, which have been so low for so long that insurance carriers, faced with a growing number of claims, are now losing money. Raising premiums – and deductibles – is a way for insurers to offset their losses.
“If we can get the case resolved quickly and easily,” says Braverman, “maybe it's even within the deductible,” which can range from $2,500 to $10,000. “Then there are other times where the case will linger for years, and it'll cost hundreds of thousands of dollars to defend it.”
Samman says that many insurance carriers are gently pushing boards to mediate instead of taking claims to court. “It's a quicker way to try to resolve the matter,” he says. “People are realizing that litigation's costly, it can take a long time, and if there's a better way to resolve something, it's probably best to try to use that tool.”
Elizabeth Heck, president and CEO of the carrier GNY Insurance Company, says that some premiums are jumping by as much as 20 percent. “Pricing is going up across the board,” she says, “It's not just in D&O. It's also in property and liability insurance.”
Insurance carriers are required to give clients 60 days’ notice if premiums are set to increase by more than 10 percent. However, most co-op and condo budgets are drawn up in October, before they receive the notice of looming insurance premium hikes in the coming year. How can boards avoid under-budgeting for insurance?
The first step is to study the loss run history – all the claims that have been made against the building’s insurance policy for that year. It should include the date of the claim, a description of the claim, and the resolution. Mari Ann Cole, president of the brokerage Long Island Coverage Corp. Insurance, recommends that boards have their managing agent request their loss run from their insurance broker annually. “They really should be asked for once a year,” Cole says, “especially if they've had a claim during the course of the year. You want to know whether it's been settled or closed as unfounded. If you've had multiple claims, the loss history gives you an idea as to whether they're isolated incidents or there's a trend that should be addressed.”
And how can a board address such a trend? If, for instance, there has been a flurry of lawsuits by shareholders seeking emotional-support pets, it might be time for the board to review its pet policy.
A board facing a drastic increase in insurance premiums can ask its broker to negotiate with the insurance carrier. The board can ask for a higher deductible to offset the rate increase, or it may choose to shop around for a new insurance carrier. The risk with switching to lower premiums is that the board may find itself with less coverage than it needs, which is a vulnerable position to be in.
“You can get a bare-bones D&O policy, [that will cost you] hardly any money,” Cole says, “but you have to know which protections are being lost.”
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