Feature: Common Challenges and Disputes

The Importance of Directors & Officers Liability Insurance as an RMC Director

Written by Sinead Campbell of London Flats Insurance

London Flats Insurance

With this month’s topic in mind, we wanted to give some examples of common disputes that arise when RMC directors face claims brought against them by their fellow residents, as well as the issues they face if they’re not suitably insured.

Covering the Obvious

Any RMC Director knows that the job of insuring the building they manage is a top priority. It’s a huge task that usually takes the number one spot on the list- why? Because without sufficient cover in place, every resident in the building is at risk both financially and in terms of safety and comfort. However, many RMC Directors and committee members fail to make this connection with their own personal financial safety. While you’re probably aware of your ‘criminal liabilities’ as a Director (e.g. making sure proper accounts are maintained and returned on time) but have you ever considered your civil liabilities to both your company and third parties? Not many people would enter into an authoritative role within a business without suitable insurance- it should be no different for RMC Directors and Officers.

The Costs of Claims Against You

It’s a commonly-held misconception that your role within a company or sitting on a committee as a volunteer is protected. This is not the case. Your decisions and those of your fellow board or committee members could end up costing you everything you own. The fact is, as a Director or an Officer of a company, you hold a position of trust and you are personally liable for any act which is negligent or in breach of that duty or trust. It’s worth noting too that there is no limit to your liability. You don’t even need to have done anything wrong to be faced with legal costs. If you are accused of something that has no foundation, you may still have to take legal advice and defend yourself- and if you have ever had dealings with a lawyer you will know that their services do not come cheap.

What Claims Can Directors Face?

While you may have taken on the role in an attempt to help and serve your fellow residents and have acted in good faith to resolve a problem, you may still be accused of anything from committing funds you were not entitled to commit, to negligence for taking too long to arrange a repair. Some examples of known claims are below: 1. An RMC faced an allegation of wrongful termination after it fired an employee for gross misconduct. 2. A Director faced being sued as a result of a property being devalued following their decision to paint the exterior of the building an unusual colour. 3. A Director of a property-owning company breached his authority by appointing a family member’s company to undertake work on their behalf. Proceedings were issued by the claimant for non-payment of fees of £42,000 following cancellation of the contract. 4. A neighbour sued a Director because the value of his flat fell. He claimed the drop in value was due to the Director’s inadvertent failure to identify and rectify external repairs. 5. A tenant held a Director responsible for the poor workmanship of external contractors who had been engaged to repoint the external walls.

How Does a Directors & Officers Policy Protect You?

The purpose of a Directors & Officers (D&O) insurance policy is to provide defence costs and/or compensation for civil liability claims arising from the wrongful act of a director or officer in the running of a company. Wrongful acts include actual or alleged:

  • Breach of trust
  • Breach of duty
  • Neglect/error/omission
  • Misstatement
  • Libel and slander
  • Breach of warranty of authority
  • Wrongful trading

A range of limits of indemnity may be chosen, which will include payment of costs, and most policies will cover present directors and officers, former directors and officers and future directors and officers. Cover also applies to spouses, heirs or legal representatives in the event of the death, bankruptcy or insolvency of a director or officer.

Entity Cover

Entity Cover is normally taken out as an extension to your Directors & Officers Liability Insurance policy. It protects your company in case proceedings are brought against the Company rather than individual Directors and Officers. For example, leaseholders of a block of flats successfully brought an action against the Residents’ Management Company for failing to appoint a building company in a timely fashion to repair external brickwork on the building. Damage had been caused following a heavy rainstorm and was reported to the Management Company however, repair work had not been commenced several months later when a subsequent rainstorm caused further damage.

The consequent costs and legal charges resulting from damages awarded by the court and paid from Directors’ personal assets could have been avoided had the Company taken out Directors and Officers Liability insurance with Entity Cover. All RMC directors should make it a priority to ensure that, having looked after everyone else, they now spend some time looking after themselves. D&O cover is widely available and offers comprehensive cover at a relatively low cost. You can view the details of our specialist policy here. To discuss all of our services, call our team at London Flats Insurance on 020 7993 3034 or visit www.londonflatsinsurance.co.uk.

At London Flats Insurance, we only provide policies for blocks of flats and apartments, which means that we are specialists in this field. We know that each block of flats is different, which is why every flats insurance policy we offer is tailor-made to suit you, your block and its residents. Plus, we always work with A-rated insurance companies, so you can be sure that our insurance policies are a great solution when insuring your block of flats.

London Flats Insurance

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