HOA Board Members: 7 Things You Must Know If You're Sued Personally for Board Actions
Sometimes homeowners sue boards, and sometimes they sue both the board and board members individually. Here are seven things you should know if you're personally sued for actions taken as a board member.
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- It's not unusual. "Very often a disgruntled homeowner will sue the condo association and board members individually because the plaintiff believes it will put tremendous pressure on the board," says Robert Galvin, a partner at Davis, Malm & D'Agostine PC in Boston who specializes in representing condos and co-ops. "The homeowner's lawyer can say, 'If you agree to rescind this policy my client disagrees with, we'll drop the lawsuit.'"
- It's usually not successful. Typically cases against individual board members get dismissed because there's no legal basis to sue a board member personally for actions taken in a board capacity. "In most cases, the first thing a lawyer would do is move to dismiss the lawsuit against the board members personally," says Galvin. "There's only a valid basis for a lawsuit when board members are acting outside the scope of their authority or not acting in good faith.
"If the board decides it's going to plant beech trees, and the disgruntled homeowner says he wants pine, that lawsuit against individual board members isn't going to progress very far before a judge throws it out," says Galvin. "But if the board member is acting in a way that says, 'I don't like Bob Galvin, so I'm going to shut the flue for his fireplace,' a suit would likely be successful."
- Your association's insurance carrier will often defend you. You're likely covered if your association has directors and officers insurance. "All the associations we represent have D&O insurance, and their insurance company will defend them in such suits," says James Donnelly, president and CEO of Castle Group, a property management company in Plantation, Fla., that manages 55,000 association units. "Lawsuits against individual board members are rare, but when it happens, that's why you have insurance."
"There may also be coverage under your association's general liability policy," says Bob Tankel, principal at Robert L. Tankel PA in Dunedin, Fla., a law firm that advises associations.
- You can't ignore it. "Assuming you have good insurance coverage, call your insurance agent and send a copy of the lawsuit to the agent by certified mail," advises Tankel. "Tell the agent, 'I was served with this on this date. You have until this date to respond. Please advise.' I also recommend that clients send a copy of the complaint to me as their association's lawyer."
- You may need personal representation. In some cases, you and your board shouldn't be represented by the same lawyer. "You need individual representation when it becomes apparent your interests are not the same as those of the board," says Galvin. "If the board is going to throw a board member under the bus, that board member needs individual representation."
Your insurer typically makes the decision about whether board members need personal representation when it evaluates the case. "The board and a member could have potentially divergent interests," explains Tankel. "An attorney can represent people with divergent interests until those interests become irreconcilable."
If you need individual representation, your insurer may not cover the cost. "The D&O carrier has the right to appoint counsel," says Galvin. "Look at the policy because it may not cover separate counsel. However, many people have personal umbrella liability policies, and some will cover you if you're sued in a nonprofit capacity. Or hire your own attorney and insist the association indemnify you based on the indemnity provision in your association's bylaws."
- Your board can protect its members for the future. "There are two things every association should do to minimize this sort of thing," says Galvin. "In addition to D&O insurance, the governing documents should contain an indemnity provision stating that if a board member is sued in connection with the member's board duties, the association will indemnify the board member. If the board member was operating in the honest and reasonable belief she was properly carrying out her responsibilities, the association will pay her legal fees and any judgment that may result."
- You should periodically review your coverage. "Make sure your insurance agent confirms that your policy covers things like equitable actions and nonmonetary relief," says Tankel. "Ninety percent of cases against boards are from owners seeking injunctive relief, saying, 'I want you to make the board do this or make it stop doing that.' Some major underwriters will cover only money damages.
"Also make sure the policy provides for a defense against alleged violations of civil rights, particularly the Fair Housing Act," says Tankel. "If you're sued, you need at least a defense because most times, the legal fees will be the most expensive part.
"And regardless of what kind of insurance your association has," says Tankel, "insist your agent write a letter saying the insurance complies with the requirements of your documents and the law."