QUESTION. Regarding the most recent newsletter, can you tell me the difference between D&O insurance and E&O insurance for board members? Our HOA has the latter. Is one better than the other? Or are these terms interchangeable?
RESPONSE: Both Directors and Officers (D&O) and Errors and Omissions (E&O) coverage fall under the definition of professional liability coverage. And both respond to alleged wrongful acts, errors or omissions and provide for the payment of attorney fees and other defense costs necessary to protect an individual or entity. But there are significant differences between the two and they should not be used interchangeably as they perform distinctly different functions.
E&O Coverage. Errors and omissions coverage is designed to protect professionals who render expert advice, offer consulting services, conduct reviews or audits or renders opinions--all in exchange for a fee. For common interest developments, associations should expect their attorney, CPA, reserve analyst, insurance broker and management company to maintain their own E&O coverage.
D&O Coverage. Directors and officers coverage for a nonprofit common interest development is designed for volunteer boards who oversee the association’s business activities but do so as volunteers. While an E&O policy will cover a professional individual or entity, a well-crafted D&O policy will have a much broader definition of “insured.” When written correctly, the D&O policy will extend to past, present, and future directors and officers, committee members, volunteers, and the community manager, as well as the association itself. In the past decade, the better D&O policies have also provided a modest employment practices liability (EPLI) endorsement which is designed to protect the board and the association against certain employment-related discrimination claims.
Recommendation: Associations with E&O insurance should immediately contact an insurance agent familiar with community associations and switch to D&O coverage.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.