HOA directors and officers may be liable for their fiduciary duties

On Behalf of | Oct 1, 2020 | D&O Insurance

Many in a homeowner association (HOA) think that the directors and officers are the same. The waters are further muddied because the same people often switch between these roles. However, the distinctions are important.

The role of a board of directors

This group (often referred to as “the Board”) will often manage the daily operation of an HOA. A select number of directors are elected at an annual meeting by the Association’s membership. The group usually has equal stature, rights, preferences and each is entitled to vote on issues before the Board. There are usually three or five on Board. They are usually removed with HOA member approval.

The role of the officer

The officers usually have specific job titles – such as president, secretary, etc. The Association’s bylines will outline each officer’s responsibility, functions and duties, but state statutes also apply. Rather than elected by association members, the directors usually appoint officers from the pool of directors. If they are appointed, they could be both a director and an officer. They are unable to vote on Board issues unless they are on the Board of directors. The Board of directors removes them if it so chooses.

They can face a claim or lawsuit

Directors and officers can have insurance coverage to protect them from financial or criminal liability. However, if the carrier believes that the insurance policy does apply to the claim, associations may try to directly blame directors or officers individually for a breach of their fiduciary duty. The reasons could be for unhappiness in the maintenance of the common areas, that the Board or officer showed a bias for or against one or more members of the Association, or some other matter.

State laws may offer some forms of protection from personal liability, and the HOA’s bylaws can also do this. Still, there are often questions regarding the Board’s authority and the relevant law. In cases like this, it is usually best for officers and Board members to consult with an attorney who handles insurance matters.