When people join a community’s Board of Directors, they are typically focused on all of the positive things they can do within their community. However, it’s also important to be mindful of what can happen should any legal issues arise.
For instance, if a homeowner feels that they have been discriminated against, or they believe HOA funds are being misused, they may try to sue the involved parties. Homeowners have even been known to try to sue individual board members to put pressure on the board to make policy changes.
This makes it important that anyone who is considering joining their Board of Directors knows the extent to which they may be liable if they are sued by a homeowner. Here is a brief overview of what you need to know before becoming an association board member.
What Does State Law Say About HOA Board Member Liability?
Upon hearing that association board members can be sued by homeowners, you may wonder why anyone would volunteer for these positions. Fortunately, many states have laws in place that limit the personal liability of a not-for-profit corporation's board members, which can help protect those serving on an HOA board.
State laws governing HOA board member liability can vary wildly from one state to the next, you should always consult an attorney that specializes in associations should you have any specific liability concerns.
You May Be Protected By Your Governing Documents
Of course, even if your state's laws allow homeowners to sue you as an association board member, your association's governing documents may provide some protection.
This is because sometimes the community bylaws and/or declarations include an indemnity provision requiring the association to pay for a board member's legal fees and any judgments against them if they are sued individually by a homeowner regarding a board decision or action.
Of course, these provisions usually have exclusions for board members who are negligent, demonstrate willful misconduct, participated in fraudulent activities, or acted outside of their authority.
Your Association's Insurance May Defend You
Generally, board members are covered by the association’s directors and officers (D&O) insurance.
While most associations have D&O insurance, it is important that anyone considering joining their HOA's board confirms the association has this type of insurance policy and whether the coverage is sufficient to protect each board member in the event of a lawsuit.
D&O insurance can be instrumental in reducing a board member's liability should they be sued. Again, there are often exclusions to this coverage and a Board Member acting outside their scope of authority is the most common one cited.
While it is possible for homeowners to sue individual board members, board members are usually protected by state law, the association’s governing documents, and insurance policies.
If you are concerned about liability, always consult an attorney that specializes in associations to discuss ways to limit the liability of yourself and the Board of Directors.
Final Thoughts
If you are considering joining your association’s board please reach out to us to learn best practices for board members that will make serving your community hassle-free.
