Unfortunately, one of the most persistent and justifiable worries of volunteer HOA board directors is their vulnerability to lawsuits. In order to gauge one's own vulnerability, it's important to consider the many layers of potential immunity and general protection that apply to one's unique situation. These include the federal Volunteer Protection Act of 1997; one's state laws protecting volunteer HOA directors; protections within one's HOA governing documents; protections within one's HOA insurance policy; and any personal umbrella insurance one may have or choose to purchase. All of these layers of protection depend on meeting certain conditions generally relating directly or indirectly to the notion of a standard of care underlying one's duties as an HOA director.
Layers of immunity or protection from litigation
The Volunteer Protection Act of 1997
The protection provided under the federal Volunteer Protection Act (VPA) to volunteer HOA directors is indirect, as it refers to volunteers in general. However, as federal law, it carries the greatest weight.
To slightly oversimplify a complex and nuanced body of law, the VPA protects uncompensated, properly licensed/certified/authorized volunteers of non-profits from being liable for damages resulting from their unintentional acts of ordinary negligence while performing activities that fall within the scope of their duties as volunteers. It does not, however, protect against criminal acts, intentional misconduct or acts of gross negligence.
State laws protecting volunteer HOA directors
Every state in the U.S. has statutes protecting volunteers from litigation. These statutes can only build upon, and never subtract from, the foundation of federal protection provided by the VPA. In some states, statutes will offer conditional legal immunity or protections specifically to HOA board members. Furthermore, some states offer protections that reference the HOA's governing documents or the HOA's liability insurance. Therefore, it's of vital importance that volunteer HOA directors familiarize themselves with their state's applicable legal protections and how they fit in with other layers of legal protection afforded them. Gathering and summing up this information is an ideal task for the HOA's lawyer.
Protections within the HOA's governing documents
Some states, such as Colorado, allow for HOA governing documents to afford additional legal protections to their directors over and above those provided at the federal and state levels. Therefore, HOA board members should familiarize themselves with the relevant section of their governing documents, where applicable, as they may bring them additional relief.
Protections within one's HOA insurance policy
An HOA's insurance policy can provide yet another important layer of protection. Both the HOA's general liability insurance, as well as any directors and officers (D&O) insurance they may have purchased, can provide individual board members with substantial protection against damages arising from lawsuits. However, it's important to look at each policy for the specific language governing the amount of protection, the scope of the coverage, and the complete list of conditions and exclusions. It's also critical to check for any connection the insurance may have to state law. For example, in California, HOA volunteer board directors are immune from liability for damages that exceed the amount that their HOA's liability insurance covers.
Personal litigation umbrella insurance
The prospect of spending one's own money to protect oneself against the potential repercussions of one's actions as a hard-working volunteer is unsettling. However, the reality is that after all the layers of protection above have been taken into account; there may still be gaps. In that case, it's worth considering a reasonably priced personal umbrella policy or rider to ensure a complete safety net is in place.
The standard of care
The standard of care, or set of conditions that one must meet, in order to qualify for protection from litigation or damages by the various sources outlined above, differs from each source. Therefore, it's important to look over the entire list of conditions for each and ensure that you meet them. In order to qualify for most of the sources and levels of protection listed above, one must make reasonably well-informed decisions; one must act on behalf of the interests of the HOA, rather than for personal gain; one must not be grossly negligent of one's fiduciary duties as a director; one must not engage in any activity that requires a license, certification or authorization that one does not possess; and one must not engage in any willful or criminal misconduct—to name only a few of the most common conditions.
Knowing where you stand
Understandably, volunteer HOA board directors want to avoid lawsuits. However, to minimize your exposure, it's important to do the work of familiarizing yourself with each level of immunity or protection afforded by the many applicable sources that address volunteers in general and HOA board directors in particular. To get started, begin with the federal Volunteer Protection Act. Then check your state laws protecting volunteers and, in some cases, HOA directors. Next, look closely at your HOA's governing documents and insurance policies, paying close attention to any tie-ins to state law. Finally, explore a personal umbrella insurance policy or rider to fill any gaps you've found along the way. However, throughout this process, it's important to remember that all of these layers of protection from legal liability and damages depend on meeting certain conditions as a volunteer director. Therefore, in a sense, the most important protection of all is to hold yourself to the highest standard of care that you possibly can.