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A little-known vulnerability for condo board members is baked into the liability insurance policies for directors and officers those corporations are required to purchase in Ontario.Fred Lum/the Globe and Mail

Volunteering to serve on your condominium’s board of directors can be a thankless task – and in some cases a legally and financially risky one.

One little-known vulnerability for condo board members is baked into the liability insurance policies for directors and officers those corporations are required to purchase in Ontario: If one director brings a legal case against another, the D&O insurance provider is almost certain to refuse to cover lawyer fees or damages for either party.

A recent example demonstrates the issue. On Jan. 18, 2022, an application was made to the Human Rights Tribunal of Ontario that alleged bullying and harassment from three board directors of Toronto Standard Condominium Corporation 1810 (known as The Hudson, located at 438 King St. West) against a fourth board member named Angela Lin. According to Neil Gobardhan – one of the directors named by Ms. Lin – the board immediately informed the corporation’s insurance broker, Atrens-Counsel Insurance Brokers Inc., that an action could soon be brought against members of the board. Such notification of potential risk is often a requirement for future coverage. Mr. Gobardhan said he was not prepared for the broker’s response.

“The broker called me up, and said, ‘You guys are not covered because the board is suing the board.’ I said, that’s not correct, [Ms. Lin] is not the board … she’s just a person,” said Mr. Gobardhan. “Then they called back, and said the Tribunal hasn’t actually accepted her claim yet, so we’re not going to address it right now.” It is notable that in her application one of Ms. Lin’s suggested remedies is to ensure that “the individual Respondents are not reimbursed or indemnified by the Corporation and/or by any policy of insurance maintained by the Corporation for any legal and/or other costs or expenses incurred by them in connection with the application, investigation or with the events underlying same.”

Ms. Lin, a lawyer and general counsel for Mississauga-based financial services company Knowledge First Financial Inc. who has served on the board of TSCC 1810 at different times for more than a decade, describes in her application a series of policy disagreements with other directors in 2021 and 2022. The application describes the “creation of a poisoned work environment” where she found herself on the losing side of votes and claims her motives were questioned by other board members in increasingly acrimonious communications. She also describes a declared conflict she has with one of the corporation’s vendors – she is in a romantic relationship with a co-owner of IGI Security – that she said became a focus of those who opposed her on board matters.

More recently Ms. Lin has narrowed the target of her Human Rights Tribunal application just to Mr. Gobardhan, who is also named by Ms. Lin in a separate complaint alleging breaches of the Occupational Health and Safety Act. Mr. Gobardhan is also a lawyer and a Crown counsel working at Ontario’s Ministry of Labour, and he disputes the characterization of events in those claims (none of Ms. Lin’s allegations have been proven in court.) He said he also worries that, for non-lawyers, the costs involved in paying out of pocket to defend against legal threats could create a chill that might scare people away from condo governance.

“I don’t need a lawyer for the Human Rights Tribunal, but somebody else might,” he said. “The question is what would a reasonable director do?”

Neither TSCC 1810′s insurance broker, Atrens-Counsel, or the insurance provider, The Wawanesa Mutual Insurance Co., responded to requests for comment from The Globe and Mail about D&O insurance. But according to lawyers who work in the condominium space these policy exclusions are almost universal.

“I have seen coverage denied for individual condo directors based on this exclusion,” said Shawn Pulver, founder of Pulver on Condos law practice. “I am not aware of any cases in Ontario where these policies have been challenged as they relate to condo directors. But I would welcome legislative changes that provide extra assurances that directors will be covered for proper conduct during the course of their terms on the board.”

It wasn’t supposed to be this way. Ontario’s Condominium Act has two sections that aim to protect directors from legal and financial exposure for doing their uncompensated and volunteer jobs. Board disagreements over whether, for example, to hire or fire a vendor are not supposed to open up individual directors to legal action. Section 38 of the Act requires that condo corporations have governing bylaws that indemnify a corporation’s directors and officers from “any liability and all costs, charges and expenses” that flow from any “action, suit or proceeding” related to “the execution of the duties of office.” Further, section 39 requires “a corporation shall purchase and maintain insurance for the benefit of a director or officer against the matters described” in section 38, if that insurance product exists. The caveat in both cases is the indemnity does not apply to those who are found to have been “in breach of the duty to act honestly and in good faith.”

While establishing a factual record (or lack of one) of honesty and good faith is the role of a court, a claims adjuster who determines ahead of time whether a potentially pricey legal battle will be paid for out of a director’s own pocket could have an outsized role as to whether the parties involved will move ahead, regardless of the merits of an action.

“Insurance doesn’t cover every single situation that could be possible,” said Rob de Pruis, director of consumer and industry relations for the Insurance Bureau of Canada. Mr. de Pruis said policy exclusions known as “insured vs. insured” in the industry are present in D&O coverage for all business clients – from billion-dollar public companies to not-for-profit condos – to avoid infighting or potential collusion that could lead to fraudulent claims. Basically, an insured party can’t seek coverage for actions by themselves against themselves; for example, a homeowner who crashes their car into their own house and then demands an insurer cover the damages. He said in some cases directors of multibillion-dollar companies – where directors can also expect to be compensated generously for their oversight role – even take out separate D&O insurance in their own name to avoid those exclusions. “This is where it’s important if a person is considering to become a director or officer … to understand what those risks are,” he said.

In Ontario there are more than 11,000 condo corporations and more than 50,000 directors who might be impacted by D&O exclusions. But insurance industry insiders say D&O coverage is often a small part of a condominium’s total insurance bill – which includes more standard liability protections for the property with premiums that can run into the tens of thousands of dollars depending on the value and particulars of the building being insured. For most insurers already in the condo space it’s seen as a fairly low risk add-on.

At the same time, Mr. de Pruis acknowledged the condominium insurance business is facing some strains in Canada, pointing to British Columbia Financial Services Authority research that showed that despite condominium insurance premiums rising rapidly in that province in recent years the industry was paying out in claims almost 100 per cent of every dollar it collected in premiums, a ratio that leaves literally no room for profit.

The details of Ms. Lin’s applications against Mr. Gobardhan are specific to the situation at The Hudson, but disputes at boards are commonplace according to Rod Escayola, a partner with law firm Gowling WLG and condominium litigation expert. And even in cases where potentially vexatious suits are launched, D&O coverage can disappear.

“There used to be a time, 10 years ago, we didn’t see lawsuits involving directors, or not very many,” said Mr. Escayola. Increasingly though, board members and owners are engaging in disputes that spill into the courts and Mr. Escayola has sued directors personally on behalf of other condo owners, including one case where directors violated court orders. The flip side of D&O insurance is that even when there is coverage, often the provider will reserve the right to not pay damages in the event the case goes against the director, and may even seek to recover costs. “If the conclusion is you have a director that breached a standard of care, the insurer is not going cover that,” he said.

The result is that, despite the legislative intent to indemnify condo directors and leave them free to do their jobs, the gaps in that coverage are significant.

“It’s a volunteer position, so you’d expect the coverages are there to facilitate good, capable, smart people,” said Terence Hong, who until recently was also a board member of TSCC 1810, but was removed for failing to complete mandatory director training. When Mr. Hong was no longer on the board he was hit with a notice of libel from Ms. Lin for comments he made in an online forum for building owners. He has since apologized and Ms. Lin has agreed to a release in the matter.

Mr. Hong plans to run for election again in the upcoming annual general meeting, but said this whole situation has him thinking hard about a role that didn’t seem so risky the first time he tried it. “It’s certainly dissuaded me. … It’s made me think not just twice but three or four or five times. I’d be quick to get out the second I see things are on track.”

For her part, Ms. Lin also points to structural issues in condo law that don’t provide a mechanism for boards to mediate or resolve issues of harassment, unlike a typical employer. “Our building needs a code of conduct put in place, and a harassment policy put in place,” she said. Without those kinds of policies, she argues a board member in an intolerable situation has limited options: take legal action, or resign. Despite having some years left on her term, Ms. Lin said she is planning to resign at The Hudson’s April Annual General Meeting.

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