Condominium association board members are always concerned about getting sued. A lawsuit is a very serious matter; it can be quite a drain on one’s time, energy, finances, resources, and emotions. Many of us ask, “Why volunteer as a board member if it will only bankrupt me?” The good news is that this does not happen as much as we think. To further provide clarity on this matter, we’ll discuss whether homeowners can sue condo board members for their bad decisions.
Can Homeowners Sue Condo Board Members?
If a homeowner were to ask, “Can you sue the president of a condo board?” Yes, because a person can be sued by anyone for anything at any time. A disgruntled condo owner can always choose to sue both the board and its individual members. However, if the question is, “Are HOA board members personally liable for their bad decisions?”— the answer is not as straightforward.
A condo board member can be protected from liability in case of a lawsuit. This will be clearly stated in your association’s articles of incorporation, bylaws, or governing documents. There are also other provisions that offer protection when homeowners are suing the HOA board of directors.
Business Judgement Rule: How Does it Apply to Board Members?
When a homeowner is suing condo board members, they can use the Business Judgement Rule to protect themselves from liability. According to the law, the board of directors is immune from personal liability when it can be proven that their actions or decisions were reasonable and made in good faith.
More often than not, the Business Judgement Rule rules in favor of the board of directors. This means when homeowners sue HOA board members, a judge may dismiss the lawsuit if the latter acted within the scope of their authority, even if their decisions were ultimately bad ones.
The key here is to establish whether the condo board member upheld their fiduciary duty and acted in the best interest of the association.
It’s also important to note the reason why the Business Judgement Rule is predisposed to favor the board. Condo board members are ultimately volunteer positions and they are not compensated for the service they provide to the association. So if there were no legal protections for the members, no one would even volunteer to join the board.
The courts understand that board members are not perfect. People won’t always make the right decision every time. However, if it is clear that the board member did not act fraudulently or unconscionably, the judge will not proceed with the suit.
When Are Condo Board Members Personally Liable?
Condo board members should know, though, that they are not completely immune from personal liability. If the court finds that a board member engaged in fraudulent or malicious behaviors, they will be held accountable for their actions.
This could be when a board member takes advantage of the benefits that are not available to non-board members. It could also be when a board member borrows or uses the association’s funds for personal use.
A board member can be personally liable if they were negligent in their duties. If there are problems because the board treasurer did not check financial reports against bank accounts, they can potentially get sued.
Homeowners can also sue a board member if he puts his personal interests above the community. For example, a board member will hire a service provider owned by their family members rather than one that is most qualified for the job.
How Can Condo Board Members Protect Themselves?
It is comforting to know that condo board members have some legal protections. However, regardless if the judge votes in their favor, board members still worry about the legal expenses and resources needed to respond to a lawsuit.
Your condo association’s insurance should cover all your legal expenses. Some insurance companies may cover legal expenses under the general liability policy. However, board members should seriously consider adding Directors and Officers insurance.
With D&O insurance, board members can expect their insurance company to provide the money for legal counsel and other expenses. This insurance type also protects board members’ personal assets from litigation.
If a homeowner sues both the board and its individual members, a board member can seek separate counsel. This will protect the personal interests of the board member. However, the board member can still ask the association or its insurance company to take care of the legal expenses.
Meanwhile, condo associations should also consider Crime and Fidelity insurance coverage or Employee Dishonesty insurance coverage. These will protect the association should a condo board member commit a criminal act such as fraud or embezzlement. With this kind of insurance, the association will not be held liable for the money that may have been stolen or misused by the board member.
Should You Still Sue Condo Board Members?
A successful condo association is one where board members and homeowners coexist peacefully. While it’s impossible to agree on everything, try to remember that board members are homeowners too. They also want what’s best for the community.
If you sue condo board members for bad decisions — and there’s a chance that the lawsuit will be dismissed — this could drain association funds and resources. Homeowners should still stay vigilant, though, as this is one of the best ways to prevent fraudulent or malicious behaviors from condo board members.