Management Liability for Real Estate

Protection coupled with a growth driver

Commercial real estate firms can benefit from a Directors & Officers liability policy, or D&O insurance. Like any company that forms a board of directors, the firm needs to carry D&O insurance to attract and retain top talent, as its directors face significant legal threats — including lawsuits from competitors, tenants, employees, lenders, regulators, and others. For the firm itself, there’s the potentially high cost of these legal claims. For its directors and officers, there’s the risk that they may be held personally responsible if the firm is not financially able or legally permitted to indemnify them or make them whole.

In addition to the need to maintain D&O insurance to attract and retain top talent, these risks inevitably take executives away from their primary responsibility of running the business. Maintaining D&O insurance can relieve some of this cause for distraction as well as provide balance sheet protection for the organization.

A strong D&O program can also aid in debt restructuring and increase the firm’s ability to raise more capital as large investors and sovereign funds factor this in when investing.

Why commercial real estate companies need D&O insurance

A commercial real estate company can be structured in different forms, including Real Estate Investment Trusts (REITS), Partnerships, Limited Liability Companies (LLCs), Corporations (private or public), or some combination of these. These various structures can present unique D&O risks as suits can come from numerous sources.

Events that may trigger a real estate firm’s D&O policy include:

Employment-related matters: including wrongful termination, failure to hire, workplace discrimination or harassment, hostile work environment, and gender pay gaps
Misrepresentation of investment information, including company assets or income
Lawsuits from limited partners or other investors claiming mismanagement of investments
Mismanagement or misrepresentation of cyber-related exposures
Alleged breaches of fiduciary duty in the context of financial losses or insolvency
Breaches of laws, regulations, or rules which apply to the business
Mergers & Acquisitions (M&A) claims, tender offers, and roll-ups of minority interests
Joint Venture / Limited partner litigation, especially when JVs unwind
Initial Public Offering (IPO) exposures if a REIT goes public either through a traditional IPO or via a De-SPAC transaction
Tenants, building owners, and creditors can all bring various types of suits against Real Estate Directors & Officers

FAQs

D&O insurance protects directors and officers from claims (and regulatory investigations) that may arise from their service to the firm. While each policy is unique, D&O policies are intended to pay defense and investigation expenses of covered claims, as well as settlements and court awards. It may also protect the firm itself both as a target of a claim as well as for its indemnification of its directors and officers. Many commercial real estate organizations that are not publicly traded may mistakenly believe they are immune from D&O risks. Sadly, that is far from true in today’s litigious environment.

Pollution and environmental matters
ERISA matters
Contract exclusion
Bodily injury/property damage (other than personal injury for employment matters)
Professional Liability
Adjudicated fraud or illegal personal profiting
Claims by major shareholders
Claims by Insureds against other Insureds (except for employment-related matters)
Property Manager / Developer exclusion specific to real estate operations

When it comes to selecting the appropriate policy limits, Risk Strategies can provide a peer group benchmarking study tailored to your business. As a broker who understands the real estate sector and its unfolding liability landscape, we can make recommendations and help lead a productive conversation with the board and legal counsel on the appropriate amount of insurance that will make them most comfortable.