QUESTION: Can a director be sued by homeowners after his/her term of service? Does D&O insurance protect only current directors or does it cover former directors as well?

ANSWER: Yes, former directors can be sued for actions they took while on the board. Unfortunately, too many plaintiffs (and their willing lawyers) file lawsuits for dubious reasons. As a result, it is important that boards purchase a good Directors & Officers(D&O) liability insurance policy.

D&O Insurance. D&O insurance covers current and past directors, provided the policy is "claims made" and not "occurrence" based. A claims made policy means that coverage is determined as of the date the claim is made, not when the alleged act occurred. As a result, claims made against former directors would be covered. Good policies broadly define "named insured." Attached is a typical definition. Boards should check their policies to see how named insured is defined.

Exclusions. All policies contain terms, conditions, and exclusions. A common exclusion is "insured vs. insured" litigation. An example is where the current board sues a prior director for improper acts committed by the director. The carrier would deny coverage because one insured (the board) is suing another insured (a former director). Boards should have their insurance broker point out their policy's exclusions. In addition, they should make sure the policy has appropriate minimum levels of coverage.