D&O insurance is one of the few line items in the association budget that boards usually buy without understanding. Then a derivative claim arrives, the carrier denies on an exclusion no one knew existed, and the board learns the hard way what the policy actually covered. Here is what to know before the claim shows up.
What D&O insurance covers
Directors and Officers (D&O) liability insurance for community associations typically covers:
- Defense costs for claims against the association, the board collectively, or individual directors.
- Settlements and judgments for covered claims, subject to policy limits and exclusions.
- Wrongful-act-based claims — typically defined to include negligence, breach of duty, mismanagement, and similar theories.
- Employment practices liability in many community-association policies, covering harassment and wrongful-termination claims by employees.
The specific coverage depends entirely on the policy. Two associations buying "D&O insurance" can end up with materially different coverage based on the policy form, exclusions, and endorsements.
What it typically excludes
Several exclusions appear consistently across community-association D&O forms and frequently surprise boards at claim time:
Selective enforcement
Some policies exclude claims arising from selective or discriminatory enforcement of governing documents — exactly the type of claim that boards face most frequently. Other policies cover them. The difference can be the difference between full defense funding and an out-of-pocket fight.
Bodily injury and property damage
D&O policies generally don't cover bodily-injury or property-damage claims. Those are CGL coverage, typically held separately. Where a single incident generates both types of claims, the insured needs to coordinate the two policies.
Construction defect
Most D&O policies exclude claims arising from construction or development. This matters most for newly-turned-over associations whose first major exposure is the post-turnover construction-defect litigation.
Prior acts
D&O policies generally cover claims based on acts during the policy period plus a "prior acts" period that's specifically negotiated. New policies often exclude prior acts entirely; renewing policies typically extend the prior-acts coverage. A break in coverage can leave a gap that resurfaces years later.
Insured-vs-insured
Many policies exclude claims by one insured (e.g., a director) against another (e.g., the board). For derivative-style claims by one director on behalf of the association against other directors, this exclusion can defeat coverage entirely.
Punitive damages and intentional acts
Standard exclusions for intentional misconduct, fraud, and (in some jurisdictions) punitive damages.
Limits, retentions, and coverage layers
The economics of D&O coverage hinge on three numbers:
- Per-claim limit — maximum the carrier pays on any single claim.
- Aggregate limit — maximum across all claims in the policy period.
- Retention or deductible — what the association pays before coverage begins.
Most community-association D&O programs have $1M–$5M of coverage with retentions in the $5K–$25K range. Larger associations and those with elevated risk profiles (high-rise condominiums, post-turnover associations, communities with active disputes) often carry $10M or more, sometimes through layered programs with primary and excess carriers.
Defense costs typically apply against the limit. A $1M policy that spends $400K on defense leaves $600K for settlement or judgment. Boards facing significant claims often discover that nominal-sounding limits are smaller than they look once defense costs are accounted for.
The procurement process
Sophisticated D&O procurement involves:
- Application diligence — accurate disclosure of known claims, governance practices, and risk factors. Misrepresentation in the application can void coverage.
- Form review — actually reading the policy form, not just the binder summary. The exclusions are where the value (or lack of it) lives.
- Endorsement negotiation — many of the most problematic exclusions can be modified or removed by endorsement, sometimes at modest additional premium.
- Renewal continuity — maintaining coverage continuity across policy years to preserve prior-acts protection.
- Claim notice — proper notice of claims and circumstances under the policy, on time and in the right form.
The boards that get the most out of D&O coverage treat it as a procurement discipline, not a routine renewal. Boards that treat it as a checkbox often discover their coverage is narrower than they thought.
Florida-specific considerations
Florida community associations are subject to additional regulatory requirements that affect D&O coverage decisions. HB 1021 (2024) and HB 913 (2025) added director education and certification obligations, and statutory record-disclosure requirements that can produce claims if mishandled. Florida boards facing the SIRS compliance regime in 2025 also face elevated fiduciary exposure if reserves are improperly managed. Coverage limits and exclusions should be calibrated to this risk environment.
What to ask before renewing
Six questions every association board should answer at renewal:
- What does the per-claim limit cover after defense costs?
- Are selective-enforcement claims covered, or excluded?
- What is the prior-acts period?
- Is there an insured-vs-insured exclusion, and how broad is it?
- What is the carrier's claims-handling record for community associations?
- What endorsements are available to address gaps?
The answers usually surface real gaps that can be addressed before they become real problems.
Talk to Yates Anderson
Community-association work rewards counsel who knows your documents and your community before the dispute walks in the door. Request a case evaluation and a Yates Anderson attorney will respond within one business day.
Frequently asked questions
What's the difference between D&O and CGL coverage?
CGL (commercial general liability) covers bodily-injury and property-damage claims arising from the association's operations or premises. D&O covers wrongful-act-based claims against the directors and officers — fiduciary breach, mismanagement, selective enforcement, and similar theories. Both are essential and serve different purposes.
Does D&O cover individual directors or just the association?
Most policies cover both. 'Side A' coverage protects individual directors directly when the association cannot indemnify them (typically due to legal restriction or insolvency). 'Side B' coverage reimburses the association when it indemnifies directors. 'Side C' (entity coverage) covers the association as a whole. Most community-association policies bundle all three.
How much D&O coverage is enough?
It depends on the association's size, risk profile, and litigation history. Most well-run mid-size associations carry $1M–$5M; larger associations and high-rise condominiums often carry $10M+. The right answer depends on potential claim severity, not just frequency. A single substantial defective-construction or fiduciary-duty claim can exhaust modest limits quickly.
Can the same policy cover the management company?
Generally no. Management companies typically carry their own E&O (errors and omissions) coverage. Boards should verify the management company is adequately insured and that the management agreement allocates liability appropriately.
What happens if we don't notify the carrier of a claim on time?
Most D&O policies are 'claims-made' policies that require timely notice. Late notice can defeat coverage even on otherwise covered claims. The protective practice is to notify the carrier promptly when (1) any claim or written demand is received, and (2) the board becomes aware of circumstances that could foreseeably lead to a claim. Counsel should review the policy's notice provisions early in any potentially-covered matter.