Strata living is a defining feature of British Columbia’s real estate landscape, with millions of residents residing in condominiums, townhouses, and other shared properties. These strata communities operate under a unique model where decisions affecting the entire community are made by a strata council elected by the owners. While strata corporations are required by law to maintain property and liability insurance, there’s another critical type of insurance that often gets overlooked for strata members: Directors & Officers (D&O) insurance.
What is Directors & Officers Insurance?
Directors & Officers insurance is a specialized coverage designed to protect individuals serving as directors or officers of an organization. In the context of strata councils, this insurance safeguards the personal financial assets of council members against legal claims related to their management decisions. Whether it’s dealing with a lawsuit alleging wrongful acts or managing legal defense costs, D&O insurance plays a pivotal role in shielding council members from personal financial liability.
Strata councils, composed of elected owners, make numerous decisions that impact the entire strata community. From budgeting and financial management to maintaining common areas, the decisions made by these councils can sometimes lead to disputes or legal challenges. D&O insurance provides vital protection for these decision-makers, ensuring that they are not personally liable for claims arising from their official duties.
Legal Framework: The Strata Property Act of BC
The Strata Property Act (SPA) of BC outlines the insurance requirements for strata corporations, mandating coverage for property and liability. However, D&O insurance is not explicitly required under this legislation. This omission can leave strata council members exposed to personal risk if they face legal claims related to their management decisions.
While D&O insurance is not a legal requirement, it is a wise addition to a strata corporation’s risk management strategy. As strata management grows increasingly complex, with larger budgets and more intricate legal and financial issues, the risk of disputes and legal actions also rises. D&O insurance helps mitigate these risks, offering peace of mind to council members and enhancing the overall governance of the strata corporation.
Key Risks Faced by Strata Councils Without D&O Insurance
Without D&O insurance, strata council members may be personally liable for various issues. For instance, if a council member is sued for mismanagement of funds or failure to adhere to bylaws, they could face significant personal financial consequences. Examples of common claims include allegations of discrimination or unfair treatment of owners, mismanagement of strata funds, or failure to maintain or repair common property. The financial burden of such claims can be substantial, especially if council members are left to cover legal defense costs and settlements out of their own pockets.
What Does D&O Insurance Cover?
D&O insurance typically covers a range of protections crucial for strata councils. It includes legal defense costs, settlements, and judgments arising from claims of wrongful acts or errors in decision-making. This coverage ensures that strata council members have financial support in the event of a lawsuit, whether the case is settled out of court or goes to trial.
However, it’s important to be aware of the exclusions in D&O insurance policies. Common exclusions include fraudulent activities and criminal acts, which are not covered under this insurance. Additionally, bodily injury claims, which fall under general liability insurance, are also excluded from D&O coverage. Remember, always make sure to read and understand what is and isn’t included in your insurance policies.
Why Strata Corporations in BC Need D&O Insurance
The increasing complexity of strata management highlights the need for D&O insurance. With larger budgets and more complex legal and financial issues, strata councils face heightened risks of legal disputes. Recent trends in BC show that strata councils are increasingly being sued over their management decisions, underscoring the need for comprehensive D&O insurance. Real-world examples, such as disputes over maintenance responsibilities or financial mismanagement, illustrate the potential risks and the importance of having adequate insurance to protect council members.
How to Choose the Right D&O Insurance for Your Strata
When selecting D&O insurance for your strata corporation, consider factors such as the size of the strata, the complexity of its management, and the specific risks faced. A larger strata or one with unique challenges may require more extensive coverage. It’s advisable to work with an insurance broker who specializes in strata insurance to tailor the coverage to your strata’s specific needs.
Recommended coverage limits generally range from $5 million to $10 million, depending on the legal risks and exposure levels associated with your strata. Higher limits may be necessary for larger or more complex strata corporations.
Additional Considerations for Strata Corporations
Regularly reviewing your D&O insurance policy, along with other insurance coverage, is crucial to ensure it meets your current needs. Changes in bylaws, management, or property conditions may necessitate adjustments to your coverage. Additionally, bundling D&O insurance with other essential coverage, such as earthquake or flood insurance, can provide a more comprehensive safety net for your strata corporation.
How to Get D&O Insurance for Your Strata
If you’re in the market to secure D&O insurance for your strata, reach out to one of our brokers today. We can help you navigate the complexities of D&O policies and help customize coverage based on your strata’s specific needs.
When applying for or reviewing a D&O policy, gather information on your strata’s current insurance policies, bylaws, and past claims to facilitate a thorough review and selection of the appropriate policy.
Directors & Officers insurance is a crucial element of a risk management strategy for strata corporations. It not only protects council members from personal liability but also ensures the financial stability of the strata community as a whole
Protect your strata council members and ensure comprehensive coverage by reaching out to an experienced insurance broker. Discuss your needs and secure the right D&O insurance policy for your strata corporation today.
