Not All Liability Insurance Was Created Equal

More than 90,000 accusations of workplace discrimination have been filed with the federal Equal Employment Opportunity Commission in each of the past five years, according to the Travelers Insurance Company. Co-op and condo boards need to protect themselves against these charges – not only from their past and current employees, but also from potential employees. Even if the claim has no merit, there will be a costly legal defense and, worst-case scenario, the board might end up having to pay substantial settlements. 

Eric Eggert, a broker with Mackoul Risk Solutions, describes his experiences with such cases. “An employee gets fired for being consistently late, but he thinks it was because the board is one ethnicity and he is another,” Eggert says. “Or it could be a potential employee who didn’t get hired. He feels it’s because in the interview he mentioned something about his religion and that’s why he didn’t get the job, while in reality the next person had the better resume and was more qualified.” 

The best line of defense in such cases is Employment Practices Liability Insurance (EPLI), which is generally included in the Directors and Officers (D&O) policy. “All boards should have a comprehensive, stand-alone D&O policy,” says Eggert. “It’s possible to add EPLI on to the general liability policy, but then the limit is much lower and could just be $60,000, whereas a stand-alone policy covers up to $1 million. Also, the general liability package will not cover the property manager. That’s important because if there is a lawsuit, it’s going to [affect] the board, the building, the property manager, or even some people specifically. The embedded general-liability package would not cover that.” 

A comprehensive stand-alone D&O policy will provide coverage for all persons, such as elected or appointed directors, trustees, officers, employees, committee members, and volunteers past and present. 

The pricing for D&O insurances varies and, as with so many things in life, you get what you pay for. Some policies are more comprehensive than others. The specifics of a building will also influence the price, including the number of units, the number of board members, any outstanding arrears, a major capital project. “My best guess is that a smaller building will pay between $3,500 and $4,000 annually for a $1 million limit,” says Barbara Strauss, executive vice president of the York International Agency. 

Eggert points out that the pricing for a policy also depends on the deductible, which is usually between $1,000 and $5,000. “However, your premium could go up to $30,000 after just one claim,” says Eggert “Usually insurers have to pay huge amounts of legal fees, and they try to get their money back. And often it’s a chain reaction: ‘Oh, I hear that this person was discriminated against; I feel I was discriminated against, too.’ Sometimes it wakes up the beast, and there will be more lawsuits.” 

Some buildings with a history of such lawsuits might not be able to get any insurance at all. “The buildings with problems are those who don’t have a good way of dealing with employee-relations issues,” says Elizabeth Heck, president and CEO of Greater NY Insurance Co. “We are very careful who we insure.” 

In the event of a discrimination charge, both the general liability and the stand-alone D&O policy will kick in. “Typically, the package policy is the first one to respond [because] it’s the primary insurance in the event of a claim,” says Eggert. “When the plaintiffs respond, you will have to pay the deductible, and the policy will only cover the board. Then the D&O comes in. These policies don’t cover the board, because they have already being taken care of. Then you will have to pay another deductible for the property manager and whoever else is sued because all of these people have to be defended.”