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Tips for the HOA Community March 2011
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Greetings!
Welcome to the second issue of DeNichilo & Lindsley, LLP's HOA Brief. A new newsletter for the HOA community we work with and service. We want to thank everyone for the wonderful feedback we received on our first issue, and hope to continue to hear from you with your comments. We hope that you will continue to find HOA Brief useful and worth sharing with your fellow managers and Board members.
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Protect Board Members from Personal Liability
We all know that Board members volunteer their time, often putting in many hours per week for the betterment of their communities. While most homeowners are grateful for the w ork done by the members of their Board of Directors (and community managers!), there are times when the actions taken by the Board, or by individual Board members, are challenged. While this risk would deter many from volunteering their time, the laws in California provide some legal protections for Board members from personal liability. While this protection is not absolute, so long as a volunteer board member complies with the following checklist they should avoid personal liability for actions they take as a director:
- Act in good faith;
- Act in a manner which the board member believes is in the best interests of the Association;
- Act with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances (this includes, but is not limited to, consulting with the Association's attorney, CPA, insurance and other experts, as needed);
- Avoid acting in a manner that is willful, wanton, or grossly negligent;
- Act within the scope of their duties as an officer or director of the Association;
- The Association carries insurance which meets the minimum requirements set forth in California Civil Code 1365.7(a). These requirements include both liability insurance and directors and officers liability coverage. Both types of coverage must be in the minimum amount of $500,000 if the development consists of 100 or fewer separate interests, or $1,000,000 in Associations with more than 100 separate interests.
When these requirements are met, the law provides a qualified immunity for volunteer officers and directors which shields them from personal liability, even if the amount of the damage is more than the amount of insurance coverage. In other words, a person attempting to file a civil action against a volunteer officer or director of an Association should have their claim dismissed by the courts. It is, of course, impossible to predict what a court will do in any one particular case, and many courts apply the law incorrectly, which is why we have Courts of Appeal.
Boards should also be aware that many insurance policies require that the insurance carrier be notified of potential claims as soon as the insured (the Association, or particular officers and directors, depending on the policy) has "notice" of the potential claim. This "notice" often occurs well before a lawsuit is filed. Therefore, it is important for the Board to consult with the Association's attorney as soon as they suspect there may be any claim which might be made against the Association or any directors. The Association's attorney should be able to guide the Board with respect to providing notice to insurance carriers in order to comply with an insurer's "notice" requirements. Associations should also be encouraged to obtain fidelity coverage. A common mistake made by associations is to assume that their liability insurance also provides fidelity coverage. Frequently, this assumption is in error, and the coverage must be purchased separately.
Lastly, Board's should also be made aware of the additional liability protection available for all Owners in an Association. California Civil Code Section 1365.9 protects the individual owners of the association from being sued for damages such as personal injury that occur in common areas of the association such as a neighborhood park. To receive this protection, the association must maintain liability coverage of at least $2,000,000 if there are 100 or fewer separate interests in the association, and $3,000,000 if the Association contains more than 100 separate interests.
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Dealing with Difficult Owners and Their Complaints
While most board members truly act with the best interest of the Association in mind, even with the best of intentions a board may at some point have to deal with opposition from fellow homeowners. Sometimes the opposition is legitimate. Other times, it is not. Knowing how to respond to members in the Association and handle conflict is important to building and maintaining a strong community.
Problems often can arise when an owner or owners are not happy with particular board decision or policy. For example if the board has instituted a necessary but unpopular parking program, or someone wants to paint their home a color that is not approved by architectural review committee. The owner disapproves of the decision, but the board supports the committee's decision. In such cases there is a conflict between the owner and the board. But when does a person cross the line from simply expressing their disapproval of the decision to actually becoming a problem?
Typically a problem arises when, in response to a board decision, the owner declares "war" and begins interactions with an aggressive attitude, and makes demands that are designed to harass the board and manager. A situation like that is detrimental to the entire Association because it distracts the board or manager from their important tasks, and uses Association resources in order to respond to the upset owner.
Other times the problem may be less obvious. Because board members are often neighbors and friends of other residents, owners don't always respect board members' personal time. It's easy for fellow owners to stop board members outside their homes, poolside, or by the mailbox to discuss issues within the community. While the owner's concerns may be warranted, it may border on being overzealous or even harassing since it can occur at any given moment. Typically, when this occurs there is a lack of knowledge about how a homeowners association is structured, and how the board should function. Owners (and board members) need to recognize that the boards' authority comes from the board acting as a whole, not from any one individual board member.
Transparency is good
One of the key steps in dealing with all members in an Association is to maintain regular, open communication with owners so the board's actions are always clear. A good board is responsive to residents and takes the position that every owner has a legitimate interest in what's going on and that their questions deserve to be answered. Open lines of communication will help lessen confusion and reduce any "us vs. them" attitude that some members may feel toward the board. When considering an item that may be controversial in the community, consider soliciting the input of the other owners via a survey, or even a town hall meeting.
Handling Complaints
Even while taking steps to involve the community in the difficult decisions, there will be times when an owner has a complaint. In evaluating any complaints, there are several tried and true approaches the board (and management) should consider:
- Gather as much information as possible about the facts surrounding the complaint;
- In gathering facts, initiate contact with the affected owners in a neutral fact gathering rather than confrontational fashion;
- Unless there is an emergency, only act on written complaints;
- Use IDR -- internal dispute resolution, whenever possible;
- Keep the emotions in check and make sure they are not a factor in deciding any outcome;
- Listen to the complaints from the owner's perspective and evaluate if the complaint has any merit;
- Keep your end of the agreement even if the other side doesn't;
- Standardize procedures in dealing with violations and follow the procedures as consistently as possible.
- If none of these concepts work, seek out the right kind of professional for help.
Don't get sucked into a pattern of ineffective behavior in dealing with difficult people. Follow the policies the board has adopted in compliance with the association's governing documents. When these issues arise, give the complaining party an opportunity to state their case, and do your best to let them know that they have been heard. Lastly, in resolving the issue, be fair and reasonable. Most of the time following these steps will resolve the situation. In cases where things continue to escalate, or the owner continues to make unreasonable demands or complaints, the association may need additional help. In those rare cases, discuss your options with your Association's counsel who can advise the board on specific options the board may implement to deal with such a situation.
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HOA Fact
- There are at least 310,000 community association annual meetings every year, at least 2.5 million association board meetings and an estimated one million association committee meetings a year.
- In 2010, association boards supervised the collection of more than $41.5 billion in annual assessments and maintained investment accounts of another $36-37 billion for the long-term maintenance and replacement of commonly held property.
source: Community Associations Institute |
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 | | Robert M. DeNichilo |
4000 Barranca Parkway, Suite 250
Irvine, CA 92604
Ph: (949) 654-1510
email: robertdenichilo@denichilolindsley.com
website: DeNichiloLindsley.com Blog: HOABrief.com
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