Laura Severn: RMC Directors and Officers Insurance
In this article, Laura provides a succinct overview of the importance of Directors and Officers Liability insurance when leaseholders take on the role of RMC Directors.
Directorship of a company brings with it a number of demands and responsibilities and, as a director of a Residential Management Company, it’s essential to understand the scope of your role before agreeing to take it on.
Your responsibilities as a director include a duty to act at all times in the best interests of your company, a duty of care and skill to ensure that no conflicts of interest arise, and a duty to act honestly.
If you take a chance with your duty of care as a director then you could be personally accountable for the consequences, professional, as well as financial!
You are potentially at risk of a claim if you are alleged to have breached any of your duties or responsibilities. The people that could make a claim against you include the company’s shareholders or employees, the company itself, regulatory bodies, customers and clients.
The way to protect yourself in this situation is by having Directors and Officers (D&O) insurance. This is there to protect you in the event of a claim, provided that you haven’t deliberately acted against the company’s best interests.
What is it?
Most professional insurance deals with claims against a company and is designed to protect the company’s reputation and its cost liability. Claims against directors are different because legal action is brought specifically against an individual.
If it is thought that someone in charge hasn’t exercised ‘due care’ when running the company then the individual can be sued.
If you are sued personally then you have to respond personally.
D&O insurance will cover company officers and directors against claims for negligence, financial mismanagement or breach of trust or care. D&O insurance also generally includes: “any actual or alleged act or omission, error, misstatement, misleading statement, neglect or breach of duty by an Insured Person in the discharge of his/her duties.”
A D&O policy pays to defend you in court and, if you’re liable for damages, pays for any cost awards made to the other side and can normally cover out of court settlements as well.
Purchasing A D&O Insurance Policy
The type of cover available normally covers all company officials, and covers ‘wrongful acts’ committed by all company directors and officers (both past and present).
A policy will not cover your company for any claims that you are already aware of. You will normally need to sign an agreement to confirm that you are not aware of any outstanding or potential claims which could be made against you.
Why Is This Relevant To RMC’s?
Residential management companies should shop around for insurance policies specifically designed for the residential management market so that a policy can be personalized to cover specific issues related to the property management industry.
Some examples of potential claims are as follows;
- A claim for poor workmanship of a contractor that you employed;
- Damage caused to a building and inadequate building insurance is in place;
- Incorrect calculation of service charge;
- Loss of value of property due to disrepair across the development.
In order to ensure that all potential eventualities are covered then you should outline possible scenarios to the insurance provider. Directors’ and Officers’ Liability insurance would not automatically cover for loss or damage to property or provide protection for personal injury. However, these could be covered under other insurance policies or add-ons to the D&O insurance.
D&O insurance should provide you with full cover for the above but if it does not then legal expenses insurance (LEI) can provide cover for legal expenses and costs. Legal expenses insurance can also in some circumstances provide cover for any action that Directors want to take.
Above all else, D&O insurance can provide peace of mind to residential management company directors and leave them to concentrate on the day to day running of their block.
Disclaimer: The above article is for information purposes only. Whilst every effort has been made to ensure all information is accurate and up to date, it does not constitute a comprehensive review of the applicable law and should not be relied upon as such.