“You’ve been served” is a phrase no one ever wants to hear. While lawsuits against board members are usually unsuccessful, it’s still important to protect yourself and your board from the threat. Since we hate legal speak as much as the next guy, we’ve boiled down the must-know things when dealing with lawsuits into five pointers.
1. These lawsuits happen and are usually unsuccessful. A disgruntled homeowner may attempt to even the score by suing the board or by targeting individual board members. Usually, the homeowner is hoping the HOA will rescind their policy and in return the homeowner will drop the case. Here are two examples – one of a lawsuit with merit and one the judge would likely dismiss.
If the board member, Jimmy, decides to shut off the outdoor water to his neighbor (Peter) because he doesn’t like the new flowers/shrubs that Peter planted, the judge will likely rule in favor of Peter.
If, however, Peter didn’t get approval on his new landscaping and has ignored the HOA’s attempts to rectify the situation though proper channels, then Peter’s lawsuit against the board and any individual members will likely be dismissed.
2. Good Insurance can make for a good defense. Individual members of the board are protected by the association’s directors and officers insurance (D&O insurance), and while legitimate lawsuits against individual board members are unusual, D&O insurance is necessary to protect them. In some cases, the association’s general liability coverage will also protect board members. Before you just assume officers are protected under your association’s current insurance, review your policy.
3. Don’t stick your head in the sand. No matter how “out there” a lawsuit sounds, don’t ignore it. Immediately contact your insurance provider and lawyer if you or the board is being sued. Quick attention to these issues is often the best way to diffuse and solve the problem(s). Ignoring it NEVER makes it go away.
4. You may need your own lawyer. While the HOA’s insurance will likely provide an attorney for a board member, an individual member will need his or her own lawyer when/if it becomes obvious that their interests are not the same as those of the board.
If you do need your own lawyer, make sure you review the HOA’s insurance policy because it may or may not cover separate counsel. If it doesn’t, your individual umbrella liability policy might offer coverage for lawsuits stemming from a nonprofit capacity. Or, as another option, you can hire your own attorney and based on the indemnity provision in your association’s bylaws, insist the association indemnify.
5. Protect yourself down the road. Take the time to make sure your insurance has D&O coverage, that your bylaws contain an indemnity provision, and always strive to conduct work in good faith and within the set boundaries of your HOA and its legal documents.
Hopefully these five tips help you navigate any lawsuits your HOA encounters. However, this is not intended as legal advice and the circumstances of your case may vary. Remember, often the best way to protect yourself is to be proactive and cover your bases.
Make sure you’re properly insured and conduct all business within the scope of your authority and inside the parameters outlined in your governing documents.
EMERGE INSURANCE AGENCY