Some have the notion that because HOA board members are volunteers, they are free from liability for their actions while serving as a board member. The best practice is to avoid lawsuits altogether, which will be covered in another article. Fortunately, lawsuits against board members are unsuccessful in most cases, but it’s still important to be prepared for the words “you’ve been served”. In general, you can protect the board and yourself from a legal situation by following the rules and adhering to local statues, bylaws, CC&Rs, and avoiding conflicts of interest. If the time comes that you are facing a lawsuit, we’ve summarized five key pointers to help.
Unfortunately, Lawsuits Do Happen
Even if unsuccessful, lawsuits are expensive, time consuming, and can tarnish the reputation of a board member or your association. Often these suits come in the form of an attempt to target a particular board member. A disgruntled homeowner may attempt to sue. The resident may be hoping that the HOA will change their policy, and as a result, drop the case. Here are two examples that you could encounter:
If the board member, Joe, chooses to disconnect the outdoor water to his neighbor (Greg) because he is unhappy about the new shrubs/flowers that Greg planted, the assigned judge will most likely rule in favor of Greg because this is a probable case of retaliation or potentially discrimination. You should always treat your association members fairly.
However, if instead Greg did not get approval for his new landscaping and has unfortunately neglected the HOA’s attempts to contact him and resolve the situation, and the board treated Greg like it did all other homeowner association members, then Greg’s lawsuit against Joe or any other individual board members would likely be dismissed.
A Good Defense Can Be Made with Good Insurance
While legitimate lawsuits against board members are uncommon, there is insurance to protect the board. The association’s directors and officers insurance (D&O insurance) is used to protect board members from potential legal battles in regards to the HOA. The association’s general liability insurance can also be used to protect board members in some cases. Review your policy to see how and when officers are protected under your current association insurance. If you aren’t sure of your coverages, an insurance company that specializes in HOA insurance like Blue Lime can help you understand them.
Don’t Ignore It
Unfortunately, the lawsuit isn’t going to magically disappear just because you ignore it. Contact your insurance provider and attorney is you or the board are being sued. Work to resolve it quickly and give it the appropriate attention in order to diffuse the problem. Pretending the problem doesn’t exist will never make it go away.
Get a Personal Attorney
Even though the HOA’s insurance will most likely provide a lawyer for you as a board member, you may need to hire your own attorney if/when you see that your interests are not in line with the interests of the board.
Be sure to review the HOA’s insurance policy because it may or may not cover the expense of outside counsel. If it doesn’t, your personal liability policy may offer coverage for nonprofit capacity lawsuits. Another option would be to hire an attorney for yourself based on an indemnity provision that may exist in your association’s bylaws.
Verify that your insurance has D&O coverage and that your bylaws also contain an indemnity provision. But most importantly, always conduct work as a board member in good faith within the boundaries of your HOA and its respective legal documents. In general, reasonable decisions are usually safe decisions.
Understanding these five tips can help you navigate association related legal suits your HOA may encounter. This is not intended to be legal advice, however, and the circumstances of your case may vary. The best way to protect yourself from future lawsuits is to cover your bases and always be proactive. When business is operated within the guidelines of authority and inside the parameters of governing documents, you can protect yourself from problems that may arise. If you still have questions, seek further guidance from your community manager or HOA attorney.