Belinda Bagnall from Residentsline Insurance explains the importance of insurance; for the building of course, but also for RMC Directors and Officers volunteering their time to maintain the building.

Taking on the role of Residents’ Management Company (RMC) Director or Officer is a big decision. Volunteering the time and energy needed to successfully manage a residential building is a largely selfless act, and not one to be taken lightly.

As well as maintaining and insuring the building, handling service charges, accounting and staying up to date with legal changes, Directors and Officers also face being held personally accountable for any issues caused by their decisions.

Buildings Insurance

Arranging appropriate buildings insurance is top of the list for most new RMC Directors. It is a vital task that requires in-depth knowledge of the building, its history and the insurance market.

Very few Directors take any training regarding the risks involved in under or over insuring the property. Even fewer are trained in navigating the insurance market. For the majority of Directors, working with an established, trusted flats insurance broker or intermediary is the best way to ensure that the correct policy is chosen.

With sufficient cover in place, residents, owners and freeholders are protected against physical damage. While Directors almost always understand the importance of this, they often forget to afford themselves the same protection.

Legal Risks for Residents’ Management Company Directors and Officers

While Directors are probably aware of their criminal liabilities (e.g. making sure proper accounts are maintained and returned on time) you may not have considered your civil liabilities.

RMC Directors and Officers can be held personally liable for their actions while working on behalf of leaseholders. This may seem unfair as most Directors have taken on the role on a voluntary basis out of a desire to help. But sometimes things can go sour, especially if resident finances are impacted by RMC decisions.

The fact is that, 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 is worth noting too that there is no limit to your liability.

Legal costs are not only incurred if you are found to have done something wrong. They are also incurred simply from defending yourself against claims. If you are accused of something that has no foundation, you may still have to take up legal advice and defend yourself.

What Sort of Claims Do Residents’ Management Company Directors Face?

While you may have acted in good faith to resolve a problem, you could 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 real-life claims are below and here:

• An RMC faced an allegation of wrongful termination after it fired an employee for gross misconduct.
• A Director faced being sued for devaluing the property following their decision to paint the exterior of the building an unusual colour.
• A Director of a property-owning company breached his authority by appointing a family members 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.
• A neighbour sued a Director because the value of his flat fell. He claimed the drop in value was due to the Directors inadvertent failure to identify and rectify external repairs.
• A resident held a Director responsible for the poor workmanship of external contractors who had been engaged to repoint the external walls.

How Does a Management Liability Policy Protect You?

We do not know many people who would go into an authoritative role within a business without suitable insurance. CEOs protect themselves and it should be no different for RMC Directors and Officers.

Taking out Management Liability insurance provides cover for defence costs and/or compensation for civil liability charges relating to a “wrongful act” in connection with RMC matters.

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

Many Management Liability Insurance include both Directors and Officers Liability Insurance and Corporate Liability Insurance in one policy wording. It protects Directors and Officers AND your Company for claims made against them and includes the cost of defence (and in some cases the amount of awards and damages) as a result of claims and prosecutions made in a wide range of situations.

Residentsline is a trusted and long-established insurer for the property industry. Our Management Liability cover is available via ProtectYourDirectors.co.uk, with premiums starting from just £95.76 per annum. Head here for a quote or contact us with any questions.