Directors and Officers insurance offers valuable cover for members of residential property management associations

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Members of residential property management associations fulfil an important role which comes with serious responsibilities. However many are unaware that this position makes them personally liable for any act which is negligent, outside their authority, or in breach of duty or trust.

They are therefore exposed to the possibility of a civil action claiming damages as a result of a poor decision, or even prosecution by the Health and Safety Executive following an accident to a resident or visitor (including a contractor) to the property due to their negligence.

Civil liability claims examples

Many association members aren’t aware of these liabilities, but potential civil action claims scenarios are common, for example:

• A director was held liable because the value of another lessee’s flat had fallen due to the director failing to identify and rectify external dilapidation
  
  
• A lessee held a director responsible for the poor workmanship of contractors, who were paid out of the service charge budget
  
  
• A third party sued following a defamatory remark inadvertently made by someone acting in the capacity of director
  
  
• The sale of a flat fell through because a director failed to deal with the paperwork and the resident sued for wasted legal costs

Risk of criminal prosecution

Association members can also find themselves in the dock under section 37 of the Health and Safety at Work Act 1974 facing criminal prosecution if it is considered by the HSE that an offence has been committed with the ‘consent’ or ‘connivance’ (knowledge or a decision made on such knowledge) or has been attributable to any neglect on the part of the accused.

Court action is costly and personal assets are at risk

Any allegations of wrongdoing as a result of poor decision making will need to be investigated and this can be expensive, even if the case doesn’t reach court.

If there is court action it will need to be defended which can result in significant legal costs.

If convicted there could be a large fine or possibly imprisonment.

Even if the prosecution is successfully defended and results in an acquittal, recovery of any costs will be calculated at legal aid rates which are often significantly less than fees actually paid.

This means personal finances and assets (for example home and cars) are at risk.

What cover is available?

Directors and Officers, otherwise known as Management Liability Insurance provides directors, trustees & officers of companies and associations cover for legal costs, awards and settlements for any claim or regulatory action (subject to the policy terms and conditions)

This type of insurance can also be extended to provide Employment Practices Liability, covering the company or association for claims such as wrongful dismissal, constructive dismissal, or discrimination.  Secondly the cover can be extended to include the Company or Association Liability.

Many insurers also provide telephone and email advice on the full remit of legal and regulatory issues which association members could face, including, employment, health and safety regulations, waste and environmental regulations and commercial contracts.

Premiums for Management Liability insurance can start from less than £150 a year depending on the number of flats and limit of indemnity required so it makes sense to discuss the appropriate cover with your broker.