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What Does It Mean to be on the Board of Directors of your HOA? Potential Liability (Part 2 of a Series)

We frequently are asked whether volunteer board members can be civilly liable for actions taken while a board member. This issue is of serious concern because lawsuits tend to be over inclusive, naming every possible defendant in the initial complaint. Why sign up as a volunteer board member if it could bankrupt you?

 

 

The good news is that your liability as a board member of an incorporated or unincorporated community association is limited by statute. Va. Code Ann. §§ 13.1-870.1 and 13.1-870.2 state that you are not liable for damages in a lawsuit brought against you as an officer or director if you do not receive any compensation for your services. If you do receive compensation for acting as a board member or officer, you can be liable up to the amount of compensation you have received in the previous 12 months. However, if you engage in willful misconduct or a knowing violation of criminal law, you will be liable for damages and the statutes will not help you.

Although you may not be liable for damages, these statutes do not make you immune to a lawsuit. You can still be sued because, as we say, “anybody can be sued by anybody for anything at any time.” In that case, you will want to know who will pay or reimburse you for your attorneys’ fees.

Again, there is good news here, also, but it is important to know a) whether your organization has a directors’ and officers’ insurance policy (known as D&O coverage) to cover your attorneys’ fees in defending a lawsuit and b) whether your governing documents indemnify you for any expenses you incur in such a lawsuit. Most indemnification provisions for directors and officers will be found in the corporation’s articles of incorporation or bylaws.

There is also statutory indemnification. Va. Code Ann § 13.1-876 does not require a corporation to indemnify you but it does permit a corporation to indemnify a director against liability incurred in the proceeding. The statute permits indemnification if the director conducted himself in good faith and believed that, in the case of conduct in his official capacity, that his conduct was in the best interest of the association, and in all other cases that he had reasonable cause to believe that his conduct was not opposed to its best interest. If the case involves a criminal proceeding, the corporation may indemnify the director if he had no reasonable cause to believe that his conduct was unlawful.

There is also mandatory indemnification provided by statute in Virginia. Va. Code Ann. § 13.1-877 requires a corporation to indemnify a director who entirely prevails in defending a proceeding where he is a party because he is or was a director of the corporation, unless the articles of incorporation provide otherwise.

It is important to know whether you are protected from the expenses of a lawsuit when you volunteer to serve as a director or officer of a community association. Have your association attorney review the D&O insurance policy. The attorney can also review the articles of incorporation and bylaws to determine whether the association is obligated to pay or reimburse you for any expenses incurred in a lawsuit. Your volunteer service as a board member should not cause you financial ruin, make sure you are protected.

Tarley Robinson, PLC, Attorneys and Counsellors at Law

Williamsburg, Virginia


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Susan Tarley

Susan chairs the firm's common interest community (HOAs and Condos) practice area. She was admitted into the College of Community Association Attorneys (“CCAL”). Susan is one of fewer than 150 attorneys nationwide to be admitted to CCAL, for distinguishing herself through contributions to the evolution or practice of community association law.

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Filed under: Common Interest Community, General Interest, HOA, State & Federal Litigation, Susan B. Tarley by Susan Tarley

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