“[T]he services of directors and officers of nonprofit corporations who serve without compensation are critical to the efficient conduct and management of the public service and charitable affairs of the people of California.” (Corp. Code § 5047.5(a).)
"The board members of a homeowners association are seldom professional managers, are very often uncompensated and most often are neighbors. Undoubtedly, the specter of personal liability would serve to greatly discourage active and meaningful participation by those most capable of shaping and directing homeowner activities." (Jaffe v. Huxley Architecture (1988) 200 Cal.App.3d 1188, 1193.)
Protection Against Personal Liability. Volunteer officers and directors are not personally liable to third parties for monetary damages from negligent acts or omissions in the performance of their duties. Such protections are necessary otherwise it would be nearly impossible to recruit people to serve on association boards of directors. Protections are extended as follows:
1. D&O Insurance. Directors and Officers insurance protects against errors and omissions made while in office.
2. Statutory Protection. The Davis-Stirling Act protects volunteers from personal liability while on the board of directors provided they meet certain criteria. (Civ. Code § 5800; ) They are also protected under Corporations Code § 5047.5, § 5239 and § 7231. In addition, directors and officers can be indemnified by their association if they had no reasonable cause to believe their conduct was unlawful. (Corp. Code § 7237.) The Corporations Code extends further protections under the Business Judgement Rule.
3. Governing Documents. Typically, an association's CC&Rs and bylaws both contain exculpatory language as well as hold harmless and indemnity provisions protecting officers and directors from liability for negligent acts and omissions while in office.
4. Case Law. Directors of an association have no vicarious liability for torts of the association, even though they, unlike a member that has only a single vote, are the policymakers that control the association's conduct. (Frances T. v. Village Green Owners Assn. (1986) 42 Cal. 3d 490, 504.) Directors of an association cannot be held liable as individuals unless they personally participated in a wrongful action. (Id. at pp. 503-506.) Association directors may be sued for tortious conduct only if they personally directed or participated in the alleged tortious conduct. (Ritter & Ritter v. Churchill Condominium Assn (2008) 166 Cal.app.4th 103, 120-121.)
5. Volunteer Protection Act of 1997. Some associations may benefit from additional protections under the Volunteer Protection Act of 1997. Directors are immunized from liability for an act or omission provided:
- The volunteer acted within the scope of his or her responsibilities in the nonprofit organization;
- If appropriate or required, the volunteer was properly licensed, certified or authorized by the appropriate authorities for the activities that resulted in harm;
- The harm was not caused by willful or criminal misconduct, gross negligence, reckless misconduct or a “conscious, flagrant indifference to the rights or safety of the individual harmed by the volunteer”; and
- The harm was not caused by the volunteer's operation of a motor vehicle, vessel, aircraft or other vehicle requiring an operator's license or insurance.
Limitations on Protection. Protection from liability does not extend to gross negligence, intentional misconduct, self-dealing transactions, criminal behavior, hate crimes, sexual misconduct, intoxication, drug use, or violation of civil rights laws. (Corp. Code § 5047.5.) A finding by a jury that individual directors and officers are not liable does not preclude a verdict against the association itself. A greater degree of fault is necessary to hold unpaid association board members liable for their actions on behalf of the association. (Ritter & Ritter, Inc. v. Churchill Condominium Ass'n, 166 Cal. App. 4th 103.)
Additional Information. For additional information, see (i) Director Duties, (ii) Fiduciary Duties and (ii) Attorney's Fees.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.