Homeowners Associations are corporations. While board members may serve in a volunteer capacity, they are subject to the same type of liability as board members who serve for-profit corporations. It’s important that a HOA have adequate insurance to safeguard its officers and directors against considerable legal liability.
Protection From Personal Liability
Board members can be sued in an individual capacity jointly or severally from the HOA. A HOA D&O insurance policy will help to cover expenses in the event of a legal action against them:
- Attorney’s fees
- Settlement agreements
- Court orders to pay damages
Property owners can sue HOAs for a variety of different reasons. It is common for suits to involve a violation of the HOAs fiduciary duty to the owners who it serves.
- Financial mismanagement that results in misuse of HOA funds
- Misrepresentation about how HOA funds are being spent
- Conflicts of interest in which HOA officers and directors are enriched at the associations expense
- Failing to perform reasonable maintenance that causes damage to HOA property or assets
In addition, some claims against an association could be based on unenforceable HOA rules that have caused owners to experience damages. A separate type of insurance can address rules or employment practices that are discriminatory in nature or violate local law.