Board Member Personal Liability

I am a board member of an HOA I am concerned that my board does not have good governance habits. And there is self serving decision making going on. If I don't do anything about it, am I potentially liable? Are there board members like me out there who are concerned about personal liability?

Isn't the business judgment rule a lawyer argument. I don't want to get sued and named in a lawsuit. I've gone threw that before. My husband is not going to be happy if I get sued. He doesn't even think I should be a board member because of the personal exposure.

The board member who handles the minute drafting doesn't show us her draft until the next board meeting where we spend a lot of time reading them and arguing about the draft. Getting my position in the minutes is impossible with this group.

I've never seen the insurance policy. I learned the hard way with a claim involving a charitable non profit board I serve that there are a lot of things not covered by insurance and in that lawsuit we were named as board members in the suit and had to pay for our own lawyers. Insurance makes me feel better but I'm still worried about personal liability and getting named in a lawsuit because of what the other board members are doing.

Thanks for your thoughts Tim. I'm freaking out thinking about the possibility of getting sued again.

Hi Fred. Funny but true. I don't want to absolutely avoid getting sued. I realize that being a board member has risks and sometimes you get sued. What I want to do is everything I can to make sure it doesn't happen and if it does, that I am as prepared as much as possible to defend myself. I don't really know my fellow board members personally and I find it hard to trust them in running our HOA business.

In my other lawsuit, each board member was sued and had to defend themselves. It got pretty ugly. I hired an attorney but the lawsuit process took a lot of my personal time. They asked for all sorts of things like emails from the email account at my job and documents that were on my work computer. It was embarrassing telling my boss I needed emails and documents. I thought he was going to fire me.

I know the risks of being a board member and certainly want to live, but want to make sure I am doing everything I can to protect my family.

Do community association board members in Virginia worry about personal liability. I have to imagine that they face the same concerns as board members in other states. Other than good minutes and insurance is there anything you do in Virginia to protect yourself? Really appreciate the input.

Rebecca,

I'm aware that it's something that can happen but I don't worry about it. I can understand your concern being higher than mine simply because you have been through it before. VA's statutes do have some decent protection for volunteer Board members.

I've been told by a friend who owns their own business that you don't worry about having legal action taken against you. You expect that legal action will be taken against you and you do things to minimize or eliminate your exposure.

This is what I have done:

1) Read and, to the best of your ability, understand all the applicable laws.

2) Read and, to the best of your ability, understand all of your governing documents.

3) Educate the membership about the applicable laws and governing documents

4) Propose policies and procedures where none exist or need improvement.

5) Speak up in Board meetings.

6) Trust but Verify

#1 & 2 obviosly educates yourself so you know what you can and cannot do.

#3 educates the members so they understand how the system works and what limitations you are under. By simply educating the members, you can minimize incorrect perceptions (which can lead to legal action).

#4 protects you and other Board members. Typically problems occur when there are no clear procedures or policies to follow. By ensuring policies are in place before they are needed, everyone knows what needs to be done and how it needs to be done in order to comply with any applicable laws.

#5 simply helps to ensure that things are done properly. I've found that most Board members won't take the time to do steps 1,2,3 or 4. Therefore, it's important that those who have educated themselves speak up so the other board members can make informed decisions. Typically, when the individual is making an informed decision, it's usually the right decision to make.

#6 is most important. This not only goes for what others are saying but for what you think you know and are telling others. If you take the time to verify what you think you recall the law allows, it provides you the opportunity to see if there have been changes to the law since you last read it.

I've attached a word document that has been posted in the past (I got it from an earlier thread when someone else posted it). It's a list of policies every Association should have.

Hope this helps,

Tim

First, make sure your Board even HAS D&O insurance. Our Board didn't until 2 years ago when those on the Board made a conscientious choice to obtain it. Does our current Board even have it after they decided to get rid of the former insurer? Couldn't even tell since they were more concerned with having an insurance company that would cover the activities they and their little buddies wanted to do and not so much with having insurance that might cover them in the event of a lawsuit.

Our HOA attorney did advise the Board last year that they could be sued as Board members. One Board member resigned rather than be exposed to that level of liability. I disagree with Melissa on that point- there is nothing stopping a homeowner from suing you apart from the HOA. I suppose state laws will differ though so maybe it is different in her state.

If anything, always make it clear in the minutes. If you vote a certain way, you would want the minutes to reflect why and you need to state why when you cast the vote. For example "I vote NO because this proposal violates blahblahblah in our covenants". Always keep it factual. If the person who is supposed to do the minutes is not able to accurately do so and your Board is wasting time quibbling over it, then that person needs to be removed from that duty.

I can assure you that someone will always threaten to sue anyone, especially those on a BOD. 99.99% are idle threats but the threat is always there.

With Command, comes responsibility.

The questions are how does the association protect it's BOD Members and is it necessary/available for one to additionally protect them self?

I have been told recently that in the USA, you can sue anyone over anything, right or wrong, stupid or not. Our general insurance policy has some coverage against wrongdoing by the board, but my question would be, if the HOA did make a decision regarding the HOA, and someone was to sue, wouldn't they have to suffer some type of damage in order to be successful?

Having experienced being sued as a board member for nothing I did, but rather what fellow board members had done, I can tell you that the legal process is a overwhelming process. It takes a hard toll on your personal life. Anyone can sue you and you have to defend yourself. If the person suing you alleges enough against you, even if untrue, to state a claim, you are stuck in the lawsuit. They take you through something called a discovery process. They can go after your personal records. They can subpoena your employer to see if any records are with the employer on the employer's email or computers. The judge can stop them, but in my case, the judge let the person who sued go on and on and on. It is exhausting. Insurance did not cover the case and all the board members hired separate lawyers. Having the lawyers deal with the discovery exchange was really expensive and time consuming.

As an example, suppose you have a rogue Board member who does something that is against the decision of the Board? Those are the situations where a Board member can be sued as an individual and does not have the blanket protection of "it was a Board decision". That particular example has happened in my Association around 5 or 6 times in the last 2 years. And there is a lot of documentation to prove it. Has that rogue Board member been sued? Not yet (note I said yet and not never).

I am not nor do I play a lawyer.

I believe Rebecca is talking two different subjects. A HOA BOD and an other type organizational BOD she was on when she was sued individually.

Have I read this correctly?

I submit there could be two different type situations thus different laws and/or insurance issues.

Were I as concerned as Rebecca is, I would be legally covering my butt 7 ways from silly.

The lawsuit involved a not for profit board I served.. It is just like the not for profit community association board I serve. Same type of insurance and legal issues. Board members have the same fiduciary duties. Trying to do all I can going forward with the HOA to avoid personal liability.

The trouble is that as a board member you are vulnerable. You could get added individually to the lawsuit in that case and dragged through the discovery process and you never know if a court like that one is going to award legal fees or punitive damages against you, just because. Our insurance broker told us that punitive damages are never covered by insurance and could be a big problem. I'm not sure whether insurance can cover the legal fee award, but my guess is that the insurance companies carve attorney fees out of their responsibility, leaving it to the association or board members to pay. Crazy.

RebeccaS,

You wrote that “I've never seen the insurance policy”. What do you mean by that?

Does your Association have D&O (Directors and Officers) Liability Coverage in effect or not?

Or are you just telling us that you have not seen the policy?

How large is your Association? Are you self-managed? Just wondering.

Hi,

My husband and I successfully took our HOA to court. While some might say this is like suing yourself, our civil rights were being abrogated and you could also make a case that suing your state, city or federal government is also the same as suing yourself.

INSURANCE

One of the first things we sued for was access to the insurance documents. I'm not familiar with the laws of your state, but almost all states make access to your insurance documents a matter of law. The board should have a set on hand in order that any member might request them and be able to see/read/copy them. That was the first problem we encountered.

As with all insurance policies, you should take time to read them. Most insurance policies have a clause that states the insurance does not cover illegal actions--actions that break city, state or federal codes. Think of it this way: With your auto insurance, you aren't cover for damage incurred if you decide to rob a bank and get chased by the police.

Further, you should then check your CC&$ and state code regarding board directors. In our state, my understanding is that another board member has to bring up a board member on the charges of willful misconduct and that the actual charge must be decided in a court higher than small claims court.

Your directors and officers insurance should protect you from duties carried out as an officer/board director that were carried out in good faith and were not willful, wanton or grossly negligent.

In our cases, the insurance agent settled out of court to tens of thousands of dollars because in court, the officers would likely have been found guilty. It was quite clear in writing that the board directors understood the state statutes which I repeatedly quoted and posted and still tried to prevent us from attending meetings and speaking at meetings.

Remember ignorance of the law or your insurance policy isn't a good defense. It is a director's fiduciary duty to know and understand the CC&R and assorted legal codes to the best of their abilities. It is also the duty of all members to be informed by either attending the meetings or reading the minutes.

MEETING MINUTES

Your point about the meeting minutes is important. Should the board take illegal actions, two things should happen. The first is the board directors who realize this is illegal should vote against it. All voting should show which directors voted for or against a measure. This is a means of showing the voting record of directors and should be used to help members vote for members who will actually best represent them. It is also a means of determining liability. Think of how we as voters understand what is happening in congress and the senate.

The second thing that should happen is once members realize an illegal action has taken place, they should also make a written protest. That means all members should be requesting and receiving meeting minutes. This was another reason we sued our HOA board. In our state, meeting minutes are required to be produced 30 days after a meeting. These minutes might not be approved since usually the first agenda item in a meeting should be to read and approve the last meeting minutes and make any corrections.

If neither of these two things happen, then the HOA should accept liability, but that doesn't meant the insurance will accept liability. Also remember that ignorance of the law isn't an acceptable defense. As we informed the whole membership at our own cost that the board was taking illegal actions and discriminating against us and while we got covert support (two people expressed their sympathy) there was no action the pressure the board to stop. You as a director/member should express your concern in writing in a letter that specifies the problem/concern so that you can later show you should not have liability.

The lack of other members doing anything to stop the code violations in our case might have been related to actions by the board to misrepresent the situation. However, all members have the responsibility to investigate for themselves and one supposed wrong doesn't entitle a board to break state and federal law. If someone has violated the CC&R or civil code and the board is going to hold a hearing, that doesn't give the board permission to violate legal codes.

When the board made a decision that was against California state codes, we protested in writing.

DIRECTORS AND HEARINGS

We were given a hearing and the board failed to follow legal codes regarding the hearing.

I bring the hearing up for a reason. My husband was a board member on a previous board. There were two unanimous decisions made that the next board decided to hold a hearing about. You can probably see the first problem: None of the other board members were charged in this hearing.

Although the board refused to show us their evidence prior to the hearing (due process), they also refused to find and give us two things: meeting minutes that would show the board decision and newsletters. We were able to find and produce the meeting minutes on our own. However, because the board didn't complete the elements required for a hearing, it was my decision not to attend.

As a former board member, my husband was then found guilty and asked to pay a sum that we knew (from documents that the board was forced to turn over from the first case) that was over the actual cost of repairs for the supposed damage. This is fraud. If your board is knowing committing fraud and by the time of the hearing, they knew the actual cost, then board members can be held liable and your HOA D&O insurance won't cover you.

In California there is a code that is supposed to prevent a HOA from asking for excess of actual cost. HOA in California are supposed to be non-profits.

Your best defense is keeping good records.

We eventually sold our unit because we didn't feel safe. That was the fault of not only the HOA but the community. We kept the community informed, but we were told by members that they weren't concerned about liability. We also had a director steal objects by climbing on a ladder and taking them on three different occasions from our balcony. We called the police (have a photo of him doing it) and the police got him to return all three items. Even then, no one wanted to petition for his removal. That director lied, in writing and in a public forum, about the first two thefts. He was the treasurer in a self-managing HOA.

So I can't tell you the actual cost of the lawsuit. It is likely that the insurance rate went up or the insurance might have dropped our HOA and the HOA might have a different carrier now. The same board seems to be in place currently. We were in court three times in less than six months and we won all the decisions, meaning that our HOA lost all three cases.

I am not a lawyer and we eventually got one because the HOA board was in contempt of the first court decision.

EMAILS

After your experience, you should clearly understand the reason why you should not be responding to inquiries about your HOA FROM your work email. In our state, you're not supposed to be having email meetings, but that's a different issue. I did not write, you should not be replying from work, but FROM your work email. Set up a separate account and use it only for your board director related emails.

There was a case recently settled in Hawaii where the directors were held financially responsible for their actions, but that was quite excessive and involved slashing of tires and took several years to go through the courts.

We didn't want to take several years in court and couldn't rent because we didn't want to face legal liability from any further illegal actions by the board so we sold at a loss.

You could use your last experience to guide you in your current experience as a board director. I think if my husband had continued as a board member and if the previous and following board had each been more familiar with the legal codes, our situation would have been prevented. But this is a moot point.

As a director, you have even more power to protect yourself and your fellow members as long as you put your duty to others first and not self-serving actions.

Rebecca,

Your request is reasonable. We don't have problem access the documents. However, it was made easier once I started digitizing them and placing them on the Associations website. You may want to consider doing the same.

Here's an article that is very informative regarding liability.

http://hoa-usa.com/files/documents/IHG_Directors_Officers_Liability.pdf

Very informative on board member liability. Curious as to how many board members have gotten a copy of their D&O policy and how they got a copy. It seems critical to have a D&O policy and know what it covers and doesn't cover. Still trying to get a copy of our policy.

Just had a board meeting and raised some of the points regarding board member liability on this thread. I got shot down on a lot of the points. I started a dialog with my other board members on keeping our business records and board members' rights to see whatever they want. I got a lot of push back. It think my fellow board members are hiding records. How do board members in your HOA's/condos deal with your business records and giving or not giving access to all the board members? Thanks for your advice.

Tim,

I commend you for your conduct as a Board member. I think 90% plus of problems within HOA communities would not exist if all Boards adopted and complied with a complete transparency rule.

Many of the behaviors that cause angst within communities would disappear IMO if all of the facts were shown the light of day. Complete transparency in itself would in many instances be enough to discourage behaviors that might have gone under the radar. It is also a great way for Board members to eliminate any unnecessary liability. Referring to another thread, it would be great if insurance companies refused to issue Director's Liability insurance unless Boards did make all documents available. This seems like a great way to reduce their payouts IMO.

Thanks.

Excellent point!

Still a very interesting thread. Our community has shared some similar concerns with Board behavior and especially a "rogue" Board member. There is a small group that as I stated before has coordinated our efforts, with advice, to do everything possible to notify the Board of their responsibilities.

The person I refer to as a "rogue" is no longer on the Board due to term limitations. Being a developer though he remains very active in the background and the Board is populated with mostly allies of his including his partner in our community. Most of us recognize he is still the "man behind the curtain". We have been able to change many of the business practices we felt were self-serving to him, but only by constant monitoring, expressing our disagreements, and when needed making governing authorities aware of what has been happening.

I have born the brunt of the response to those of us not willing to look the other way. One of their allies on the same Board I am on, who recently purchased the home next to us (4th home he has lived in in our community of 78 lots) and installed a fence, (only on our side, part wood and part wire!) while being given a variance that has caused much negative feedback in the community (DRC controlled by the developer mentioned.) took us to small claims court this week. They served us Thanksgiving week. They wanted $4000 for me cutting down a tree that I planted a decade ago that my survey and 2 subsequent surveys showed was on our property. (7" red maple with previous damage from a deer rub, even the judge questioned his amount which is the max allowed in KS and was above the estimate, but he also wanted punitive damages which the judge nicely advised they don't do) They had another survey done after we cut the tree down because they severely damaged it with their mower because they could not cut between our tree and their fence. We cut it down and several small ornamental shrubs on our property that they also scalped with their mower so that they could mow without going onto our land and to keep things from escalating. A friend of ours, a deputy for the county and his wife were over for dinner and saw the damage and how they entered our property to mow even though they stated they would prosecute us if we ever entered their land. Their latest survey showed the tree just inside their property line with the pin driven into the root flair of the stump. The damage occurred Memorial weekend, and so the fence itself (The wood portion was installed with the rough side facing us and the DRC approved part of the fence to be steel T posts and wire with 4" squares, the type used for live stock in a community with homes from $300K plus to $800K), the damage to our plants and the timing of the lawsuit (Holidays) were all done in our opinion as well as the opinion of numerous other residents as part of a continuing and organized campaign to harass us. They have "suggested" multiple times that we should just move.

The case was dismissed after we presented 4 witnesses including the deputy and a farm manager of a major nursery to state the tree was damaged severely. FTR, the previous neighbors loved us, as do our neighbors on the other side, because we always help with their jobs because of equipment I have. (Rural community, 3-12 acre lots.)

I know Melissa will chime in, but a group of us are moving towards legal action as it seems to be the only option left. I find it a joke that some on this site just will not admit the fact that there are small people out there who are so insecure they try and make themselves feel better by lording over anyone too afraid to stand up for themselves. FTR, others have already wanted to go the legal route. I have been the one to date saying not yet, let me get on the Board and try to make changes from within. If I can't do it this way, we will have no other recourse but our suit will at least show we did everything possible first. Acted in Good Faith so to speak, which we have been advised will prove helpful.

So, I can personally relate to what you are experiencing. Notice I did not share the legal challenge before, nor did I come on and gloat about it when decided in our favor 2 days ago. I have no doubt there will be future legal battles, so your husband is correct in asking you not to serve, or to at least consider wisely. Keep the faith! For my wife and I, not having children which gives us a little flexibility, we think this is the kind of action true American loving Patriots are obligated to take. You have my sincere respect and gratitude. Remember, their will be trials and hardships along the way, be brave and unwavering and find good allies-people of similar character to you! We have had great support which has made this ordeal bearable to my wife and I, and the others are quickly losing the little support they had but their arrogance blinds them to this fact. Best wishes!

There is no doubt that some BOD's need to be slapped upside the head. Even legally if needed.