Whether a board member can be personally responsible in a lawsuit linked to his or her job as a board member is a typical issue for new HOA board members as well as for board members who have worked for years but have never had to cope with a litigation threat. A board member may be held personally liable, just as in the world of for-profit businesses. Still, there are a variety of legal safeguards available to them as well as strategies to limit their liability exposure.
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Fiduciary Obligations of a Board Member
A board member who sits on an HOA board assumes a variety of legal obligations regarding the HOA. Your state’s individual company laws will detail the specifics of these obligations. Still, generally speaking, board members have an obligation to prioritize the interests of the over their own interests when discharging their duties. This entails managing the HOA with appropriate care, acting within the bounds of the authority allowed by the internal bylaws of the HOA, and working with the HOA sincerely.
When HOA board members fail to uphold these obligations, they risk legal issues and consequently liability. A lawsuit against a board member might result from, among other things, the board member’s use of HOA funds outside the limits of the authority assigned to that board member or the board member’s bad faith contracting with his or her own company.
Limiting HOA board members’ personal liability
There may be several safeguards to insulate a board member from personal culpability in a lawsuit, even if they have broken a fiduciary obligation. Given that HOA board members are frequent volunteers, certain state statutes limit a board member’s personal culpability in a lawsuit.
A clause stating that the HOA will protect board members in cases of personal liability by paying for legal expenses may also be found in the governing papers of the HOA, including the HOA bylaws. These clauses, however, are frequently constructed so that specific behaviors or activities, such as purposeful, intentional, or reckless activity, are not covered by these protections. Legal disputes regarding whether a certain activity falls within or is excluded from the exclusion are not uncommon. Similar to how the HOA might have insurance protecting HOA members of the board from personal liability, excluding wording may apply when obtaining the benefits of this coverage.
