Because association D&O policies routinely carry broad contract exclusions, and carriers routinely deny on them.

The exclusion's ordinary purpose is defensible: a D&O policy insures wrongful acts in the management of the association, not the association's decision to breach a vendor agreement it could simply have performed. A board that stops paying a landscaper is not making an insurance claim.

But complaints are rarely so tidy. A plaintiff suing an association will plead contract and tort, because that is what plaintiffs do. Under this decision, the tort count pulls the whole defence obligation with it — and the defence obligation is usually worth more than the indemnity, because most of these cases settle.

What to do when a D&O carrier denies

Read the exclusion against the specific counts pleaded, not against the dispute's subject matter. The question is not “is this fundamentally a contract fight” — it is whether every count alleges liability arising under the terms of a contract.

Where any count alleges a tort committed against a third party — tortious interference, defamation, misrepresentation to a purchaser, breach of fiduciary duty to owners — there is an argument the exclusion does not reach it, and one potentially covered theory obliges the carrier to defend all of it.

Push back in writing, cite the theory, and ask the carrier to identify which count it says falls within the exclusion.

The governance lesson underneath

It should not be lost. The conduct alleged was restructuring a vendor to shed labour obligations. Whether or not it was unlawful, it was the kind of decision that produces litigation against the association and its directors personally.

This is also a reminder that D&O coverage is the thing standing between a volunteer director and a personal judgment — and that it can evaporate for mundane reasons. In one Illinois case this year a rogue purported board president froze the association's bank account, the insurance premium went unpaid, and the policy was cancelled. The board could not then prove the policy would have covered its fees.

What boards can check now

Three things, at the next renewal: the exact wording of the contract exclusion; whether the policy defines “wrongful act” broadly enough to include the association's dealings with vendors; and whether premiums are on an automatic payment that survives a change of signatory.

The insurance market context matters too. Illinois homeowners premiums rose 14.7% in 2024 against an 11.6% countrywide increase, with an Illinois incurred loss ratio of 77.82% versus 63.82% countrywide — and the state's new rate-review authority most likely does not reach association master policies.

What to watch next

Whether Illinois state courts adopt the same reading. This is a federal decision applying Illinois law and is persuasive rather than binding on an Illinois court.