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You were elected to the board of directors? Gee, that’s … um …

Fri Nov 7th, 2014 on     Insurance Law,    

There is a naysayer in every crowd. When you buy a fancy new car, your first indulgence in a long time, one of your friends or coworkers will point out that the car lost a third of its value the second you drove off the lot. When you buy your first house, that same person, who just happened to purchase a home last year, will not congratulate you. He will kill your excitement by tossing in a “Just wait ’til you have to replace the roof” comment.

These little digs never convey important information. They just point out a source of potential suffering. If there is an upside at all, it is that listening to this person will prepare you for the worst. It is up to you, then, to try to prevent the worst from happening, to try to reduce the risk that you will wind up holding the bag when you didn’t know it could happen.

For example, serving on a condominium association’s board is not the worst thing that can happen to a new homeowner, but what many board members fail to realize is that their dedicated service to their community can end up in a lawsuit. It is possible for board members to be sued and found personally liable for things that go wrong, from mishaps to major bungles.

Look carefully at the last sentence, and take special note of the word “personally.” Your bank accounts, your car and your condo could be on the line if you are a member of the board and the board messes up.

The same is true if you are a board member for a corporation or a charity. You are in a position of power; you make decisions that affect the well-being of the organization and its employees, even its clients. And the longer you sit on the board, the more it dawns on you that the association, the company or the not-for-profit should really be watching your back.

That is where directors and officers liability insurance comes in.

We’ll discuss the particulars in our next post.

Source: IRMI, “Glossary of Insurance and Risk Management Terms: Directors and officers liability insurance,” accessed Nov. 6, 2014

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