The question comes up at the first meeting a new director attends, usually phrased apologetically: if the board gets this wrong, can someone come after me personally?
Boards tend to answer it with reassurance. The accurate answer is less comfortable and more useful: yes, in principle, and the building's structure for handling that fact is worth understanding before it is tested.
The exposure is real, and it is not theoretical
New York gives boards substantial deference in their decision-making. Under the business judgment rule, courts will not second-guess a decision taken in good faith and within the board's authority — a subject covered in full in what a board can decide without being second-guessed.
But that deference has limits, and one of them removes the shield entirely.
In Fletcher v. The Dakota, Inc., 99 A.D.3d 43 (1st Dep't 2012), the First Department held that there is no principle of corporate law under which a director is liable only where they committed a tort independent of the corporation's own tort, and reaffirmed that a corporate officer who participates in a tort may be individually liable. The business judgment rule does not protect a director who engages in discriminatory conduct.
The practical translation for a volunteer: participating in a board decision can carry personal exposure, and the fact that you are unpaid does not change it.
The claims that actually reach residential boards are predictable — a rejected purchaser or sublet applicant alleging discrimination, a shareholder alleging breach of fiduciary duty over a capital decision, an alteration denial, or an employment claim where the building has staff. None of these are freak events. They are the ordinary business of a board, viewed from the losing side.
Two layers, and boards need both
Layer one: indemnification by the corporation. For a co-op, which is a business corporation under New York law, this is addressed by the Business Corporation Law. §722 authorizes indemnification of directors and officers, subject to conditions — notably that indemnification is not available where a director has been adjudged to have breached their fiduciary duty to the corporation, and that amounts paid in settlement are treated separately. §723 governs how that indemnification is actually authorized: by the board acting through a quorum of directors who are not parties to the action, or, where such a quorum cannot be assembled, on the written opinion of independent legal counsel.
Layer two: insurance. BCL §726 addresses insurance for the indemnification of directors and officers — the statutory basis on which the corporation purchases the coverage.
The relationship between the layers is the part boards miss. Indemnification is a promise from the corporation, and it is worth exactly what the corporation can pay. A building with thin reserves cannot meaningfully indemnify anyone, which is precisely the situation in which a director most needs the insurance to respond. The two are not alternatives.
Condominiums sit differently. A condo is not a corporation; its board of managers operates under Real Property Law Article 9-B and the building's declaration and by-laws. Indemnification for condo directors is therefore primarily a matter of what those documents provide, rather than of the Business Corporation Law. Do not assume the co-op framework carries across — have the board's attorney read your specific documents.
What the general liability policy will not do
A recurring and expensive misunderstanding: the building already carries insurance, so the board must be covered.
A commercial general liability policy is built to respond to bodily injury and property damage — the slip in the lobby, the water damage from a riser. The claims a board faces are management decisions. Rejecting an applicant is not property damage. Denying an alteration is not bodily injury.
This is a different policy answering a different question, and boards that conflate them find out at the moment of claim. Owner-side coverage is a separate subject again, covered in landlord insurance in NYC.
The four questions to put to your broker
Boards tend to review the limit and the premium and stop. The terms that decide whether coverage helps are further in.
1. Are defense costs inside or outside the limit? If inside, every dollar of legal defense reduces what remains for a settlement. A discrimination claim can consume a large share of a modest limit before anyone discusses resolution. This single term does more to determine the real value of a policy than the headline number.
2. Are discrimination and fair housing claims covered, or excluded? Given that these are among the most likely claims a residential board faces, an exclusion here can hollow out the policy precisely where the building is most exposed. Ask directly and get the answer in writing.
3. Is it claims-made, and what is the retroactive date? Most D&O policies respond to claims made during the policy period, not to acts committed during it. The retroactive date governs how far back the board's past decisions are covered. A gap here can leave years of decisions uninsured.
4. Are former directors still covered? Directors rotate off. Claims arrive later. A director who resigned two years ago can still be named, and whether the policy follows them is a term, not an assumption.
Add the deductible and whether the limit is proportionate to the building's actual exposure, and that is the renewal conversation.
Getting it in front of the board
The pattern we see is that coverage is renewed by the managing agent as a line item, and the board never reads the policy. Then a claim arrives, and the board learns the terms and the exclusions in the same week it learns it has been sued.
Better practice is unglamorous: put the policy on the agenda once a year at renewal, with the broker present and the four questions above written down; confirm that the by-laws' indemnification provisions and the policy actually work together rather than assuming; and make sure new directors are told, on joining, what protects them and what does not. That last one is also a recruitment matter — buildings struggle to fill board seats, and candor about the risk alongside a clear account of the protections recruits better than reassurance that does not survive contact with a claim.
Where a managing agent carries this
Keeping the policy on the calendar, getting the renewal indication in front of the board with time to consider it, and making sure the coverage conversation includes the board's attorney rather than only the broker is part of how we handle co-op board management and condo association management, alongside the wider legal and regulatory compliance calendar.
If your board has not read its D&O policy in the past year, schedule a consultation or call 718-568-9278.
This article is general information, not legal or insurance advice. Indemnification depends on your building's governing documents and structure, and coverage depends on the specific policy wording. Review both with the board's attorney and a licensed broker.