Civil liability insurance of the directors

Directors have a very important role in a co-ownership. They are the mandataries of the syndicate of co-owners and as such oversee the day to day operation of the immovable. It is therefore essential to possess a thorough knowledge of the tasks of this function. In the exercise of their duties the directors must act with care, diligence, loyalty and honesty, and always keep in mind the best interests of the group of co-owners.

The civil liability of directors is generally not well understood. Quebecers by the thousands, members of a Board of Directors, such as yourself, are not truly aware of the liability that comes with their appointment.

Multiple risks

In theory ,the directors incur no personal liability in relation with syndicate’s undertakings and obligations. However, they engage their personal liability, for any faults committed  in the exercise of their duties, either acting as unpaid volunteers or remunerated. In such cases, they could be compelled to assume, financially, the resulting prejudice. It is nevertheless necessary that  a prejudice ensues as a direct consequence of their alleged fault.

The directors are liable of their initiatives taken towards co-owners. As a participant in the decision taken by the Board of Directors, he engages is liability. If he does not want to be held liable for a decision taken by the  Board of Directors, he must dissociates himself from it by ensuring that his dissent is noted in the minutes or other documents in lieu of such minutes (Article 337 of the Civil Code of Québec).

Object of coverage

This insurance limits the impact of the financial consequences for which the directors are liable on their assets. It protects them by assisting them in their defence, i.e. by paying the costs associated with the defense of the insured (legal fees, expert costs and other court costs). And if they are held liable, it will assume the damages and interests, as well as any other expenses that the insured is bound to pay following a claim.

Obligation to obtain insurance coverage

Contrary to the syndicate, the Law does not make it compulsory to subscribe civil liability insurance to protect the directors. Sometime, the declaration of co-ownership makes it compulsory. The directors may decide on their own to subscribe such insurance. It is not only a sound management practice for their protection, but it also offers additional coverage to all co-owners.

Exclusions

In addition to the usual exclusions, this type of civil liability insurance generally excludes any damages resulting from insufficient coverage in the policy of the syndicate such as an insufficiency resulting from a declared value inferior to the reconstruction cost of the building. If the syndicate has to rebuild, in totality or partially, each co-owner will have to contribute its own funds to cover the difference between the indemnity paid by the insurer and the reconstruction cost and the directors at fault are exposed to have to indemnify, from their own funds, the co-owners and third parties affected.

 

 WHAT YOU SHOULD KNOW! Even if you are an unpaid non-professional director, your civil liability can be engaged in the same manner as if you were remunerated even through generally, the courts are more lenient towards unpaid directors.

 WHAT TO KEEP IN MIND: To protect the directors from a direct claim by a victim or a recourse against them by the co-ownership, civil liability insurance of the directors should be subscribed in addition to the insurance of the immovable.

 WARNING! If your syndicate does not subscribe civil liability insurance for its directors, you should never accept this function, as the financial consequences resulting from your errors or omissions could have very detrimental consequences on your patrimony.

 CONSULT THE PUBLICATION: Condo Insurance: Everything you should know at pages 44 and following.

 

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