DeniseM7 (Minnesota)
Posts: 10
Posts: 10
Posted:
If an HOA board is sued over a issue or contract they passed, are the board members who voted against it liable as well??
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Board Members legal liability
Started by DeniseM7 • 6 replies • 1337 views
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TimB4 (Tennessee)
Posts: 21,059
Posts: 21,059
Posted:
Perhaps. However, there are typically laws that protect volunteers who serve on the Board along with requirements that board members be indemnified (covered for harm or loss) by the Association. This is why most Associations carry Directors and Officers (D&O) insurance. If the insurance doesn't cover the claim, the Association will need to cover the claim.
To hold directors personally responsible, you will also need to pierce the corporate shield.
To hold directors personally responsible, you will also need to pierce the corporate shield.
LarryB13 (Arizona)
Posts: 4,099
Posts: 4,099
Posted:
Quote:
Posted By DeniseM7 on 10/01/2016 12:07 PM
If an HOA board is sued over a issue or contract they passed, are the board members who voted against it liable as well??
If an HOA board is sued over a issue or contract they passed, are the board members who voted against it liable as well??
In most states individual directors can be held liable if the plaintiff can prove that the directors acted in a manner that a reasonable person in a similar situation would not have done. That is actually a very high hurdle. Few individual directors are ever found liable. Bad judgment is usually not grounds for being liable as even stupid decisions are protected under the business judgment rule.
AugustinD
Posts: 5,144
Posts: 5,144
Posted:
Quote:
Posted By DeniseM7 on 10/01/2016 12:07 PM
If an HOA board is sued over a issue or contract they passed, are the board members who voted against it liable as well??
If an HOA board is sued over a issue or contract they passed, are the board members who voted against it liable as well??
As Larry said, it's highly unusual for any individual director to have to pay from her or his pocket for some damage a bad decision of the Board caused. From an authority called _The Restatement of Property (Servitudes), the reason is that the courts do not want to deter people from volunteering to be on Boards.
But let's say a plaintiff has named three individuals who are or were directors in a suit, and the judge or jury finds that a "board decision' caused harm and the judge or jury awards damages. Once this finding is in, then either a director or the HOA is liable for the damages. In the unusual case where the judge or jury orders individual directors to pay the damages, I would expect the director who voted against the decision that caused harm would not be liable. More often the HOA's insurer pays for the damages. When the insurer does not pay and none of the board members' actions failed the business judgment rule, then the HOA as a whole will have to pay. Sometimes this means the board has to order a special assessment.
SherrilH (Idaho)
Posts: 12
Posts: 12
Posted:
This is a subject I've also been wondering about, so appreciate the poster asking and those of you who have responded. I'm familiar with D&O insurance, but what if the Board made some poor decisions unintentionally, but then when it is brought to their attention choose to still not rectify the situation according to the governing documents?
KerryL1 (California)
Posts: 14,550
Posts: 14,550
Posted:
Good question, Sherril.
Even though maybe not great protection, I've always made sure my vote was in the minutes as opposed due to x, y or z reasons. I guess I'd try to get a similar decision in the minutes when someone tries to rectify an error. sometimes, however, it can be too late, e.g, the contract already has been executed.
Can you give an example?
Even though maybe not great protection, I've always made sure my vote was in the minutes as opposed due to x, y or z reasons. I guess I'd try to get a similar decision in the minutes when someone tries to rectify an error. sometimes, however, it can be too late, e.g, the contract already has been executed.
Can you give an example?
SherrilH (Idaho)
Posts: 12
Posts: 12
Posted:
Hi Kerry,
Thanks for your response. Our board made a decision to allow homeowners to install water systems (the homeowner's dime). The water system begins on the lawn, which is common area but near their home. A pipe was then bored from the water box, underneath the alleyway (also common area) ending on the other side of the alleyway, which is also common area. They have encouraged homeowners to landscape this common area and maintain it. (our CC&R's say all common areas to be maintained by the HOA). I have concerns with possible future issues and addressed them now, also thinking about statute of limitations. I brought to their attention the possibility of pipes bursting or the liability if the homeowner hires someone to take care of this area and has an accident. I also was concerned about what would happen if the homeowner had this device installed and put their home up for sale, what about the new owner who was not notified, or does not want to be responsible for common area damage. What I was told by a board member, was that it was told to the homeowners at the annual meeting, that any subsequent damage would be the responsibility of the homeowner, even it it is common area. #1 not all homeowners were even at the annual meeting and #2, even if they have "been told" this, there is nothing in writing. Also, I'm not even sure it can be in writing as it is common area. I think where they stand now, is that they are contacting an attorney to see about changing the CC&R's. Not sure if "easements" then come into play, recordings with the city? I'm still trying to learn about all of this. Wouldn't a change to the CC&R's have to be voted on by the membership? I'm trying to protect myself and others from possible special assessment charges should we have damage.
Hope I'm not hijacking the original poster's message, and hope it falls in line with the question. Thanks!
Thanks for your response. Our board made a decision to allow homeowners to install water systems (the homeowner's dime). The water system begins on the lawn, which is common area but near their home. A pipe was then bored from the water box, underneath the alleyway (also common area) ending on the other side of the alleyway, which is also common area. They have encouraged homeowners to landscape this common area and maintain it. (our CC&R's say all common areas to be maintained by the HOA). I have concerns with possible future issues and addressed them now, also thinking about statute of limitations. I brought to their attention the possibility of pipes bursting or the liability if the homeowner hires someone to take care of this area and has an accident. I also was concerned about what would happen if the homeowner had this device installed and put their home up for sale, what about the new owner who was not notified, or does not want to be responsible for common area damage. What I was told by a board member, was that it was told to the homeowners at the annual meeting, that any subsequent damage would be the responsibility of the homeowner, even it it is common area. #1 not all homeowners were even at the annual meeting and #2, even if they have "been told" this, there is nothing in writing. Also, I'm not even sure it can be in writing as it is common area. I think where they stand now, is that they are contacting an attorney to see about changing the CC&R's. Not sure if "easements" then come into play, recordings with the city? I'm still trying to learn about all of this. Wouldn't a change to the CC&R's have to be voted on by the membership? I'm trying to protect myself and others from possible special assessment charges should we have damage.
Hope I'm not hijacking the original poster's message, and hope it falls in line with the question. Thanks!
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