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Directors and Officers Insurance for Residents Associations
Directors and Officers of Residents Associations shoulder significant responsibilities. While experienced property owners might initially consider making decisions on behalf of a block of flats a straightforward task, even a minor oversight or error can result in a costly lawsuit personally directed at you. Your personal liability extends not only to the decisions you’ve made but also to those you should have made but didn’t (known as a negligent omission). Additionally, you can be held responsible for decisions made by other directors.
Since decisions made on behalf of all flat owners can potentially impact the entire block or even result in a total loss of the building or injuries to residents, assessing your exposure as an officer of a Residents Association is crucial.
We advise all Property Owner clients to strongly consider some form of Directors and Officers insurance also known as Management Liability, even if the coverage limit is lower. The ability to utilise an insurer’s resources to defend your position can be invaluable. While there’s no legal requirement for this coverage, it’s a risk management decision by the Residents Association’s members. Demonstrating that you’re using the services of property professionals doesn’t eliminate the potential for a claim against you (even if it’s unfounded). A comprehensive Directors and Officers policy will first indemnify you as individuals (and may later seek recoveries from professional sub-contractors) and the Residents Association.
Here are some examples of areas where you may have an obligation to leaseholders to make decisions that could be challenged:
• Gas Safety
• Fire Safety
• Risk assessments, especially related to slips, trips, and falls
• Providing a safe and clean environment
In terms of providing advice for relating to the property costs and finances, you may be involved in:
• Energy Performance Certificates (EPCs)
• Payments of Ground Rent/Administration Fees
• Managing residents’ funds
You also have statutory inspection responsibilities related to:
• Electrical Inspections
• Fire Alarm Systems & Fire Precautions
• Carbon Monoxide and related Alarms
• Legionella Assessments
You might also be involved in assisting or managing eviction processes, which can increase the potential for claims against the Residents Association and its officers.
A Directors and Officers policy typically provides defence cover for alleged wrongful acts in areas such as:
• Breach of Trust/Duty
• Errors or Negligent Omissions
• Misleading statements (even if unintentional)
• Wrongful trading (for example, if a director was disqualified but not checked)
There’s also the possibility of third-party claims against a director of a Residents Association by entities like the Health and Safety Executive or Inland Revenue for matters within their respective domains.
Even if your Residents Association utilises a management company to handle day-to-day affairs, it’s essential to recognize that this doesn’t exempt you from personal responsibility. The management company operates under the directives of the association’s directors. Thus, as an officer of the Residents Association, your decisions and actions still carry significant weight and potential liability. Directors and Officers insurance remains a crucial safeguard, ensuring that you’re protected even when management companies are involved in the decision-making process.
Directors and Officers Insurance also known as Residents Association Management Liability covers a wide range of potential risks, which have become a focal point for claims in recent years. It is important to note that even a successfully defended claim for a baseless accusation can cost in excess of £5,000 in legal defence costs. In contrast, a serious breach of Health and Safety responsibilities can result in an unlimited fine but is more likely to range from £50,000 to £100,000 for an inadvertent failure.
While the loss of property value or the need for demolition and rebuilding is a worst-case scenario, it could potentially expose you to £1,000,000 or more, depending on your property’s value.
For further information or a no obligation quotation speak with one our specialist insurance advisors today.