Board Meetings
Serving wine at board meetings is not illegal but it could present problems. If directors drink excessively, their judgment will be impaired when making decisions for the association. Also, if they injure themselves on the way back to their residence, claims could be made against the association's insurance. However, if their drinking is light--one glass of wine, it should be harmless. However, if a director gets drunk or attends meetings already drunk, that is a problem. To avoid personal liability for their actions/decisions, directors must perform their fiduciary duties "with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances." (Business Judgment Rule.) That standard is hard to meet when a board member attends meetings under the influence of drugs or alcohol.
Under those conditions, a director's judgment is impaired. If the impairment is self-induced, a jury could find that the director was behaving with reckless indifference or deliberate disregard for his/her obligations to the membership, If so, it would be an abdication of their duties as a director. Such behavior is specifically excluded from protection by Corporations Code § 204(a)(10)(iv)&(v), i.e., the behavior exposes a director to personal liability. What impact does it have on fellow directors? The worst case scenario is the drunk director gets into a fight with and seriously injures a homeowner at a board meeting. The injured owner then sues the board for not previously taking action against the inebriated director. While the likelihood of success against all directors would depend upon foreseeability of the impaired director's actions, the lawsuit would certainly succeed against the problem director. The plaintiff would also prevail against the association since the director's actions occurred while in his official capacity.
If the board does nothing, it has the effect of condoning the director's bad behavior--something that could be used against the board at the time of trial. To protect themselves and the association, fellow directors should warn the impaired director to go home and sleep it off and never again appear at a meeting intoxicated. If the bad behavior continues, the board should censure the director. If the director is an officer, he can be removed from office by fellow directors. Unseating him from the board is not an option unless the bylaws specifically authorize it. That is something normally reserved for the membership via a recall election. Even so, the board can, on its own initiative, initiate a recall and put the matter before the membership for a vote.
If boards have not already done so, they should adopt a "Code of Conduct" or "Ethics Policy" to address these kinds of situations. It gives fellow directors something to reference when talking to a wayward director and provide a stronger basis for a censure.
Association Events
Associations are allowed to serve alcohol at their events as long as they (i) are not selling the alcohol, (ii) not charging admission to attend, and (iii) not serving anyone under the age of 21. "No social host who furnishes alcoholic beverages to any person may be held legally accountable for damages suffered by that person, or for injury to the person or property of, or death of, any third person, resulting from the consumption of those beverages." (Civ. Code § 1714(c).) Wine and cheese served at annual meetings or beer at association picnics rarely creates a problem. However, if an association serves hard liquor, the likelihood of an incident increases and the risk of litigation goes up, especially if participants drove to the event.
Charging Admission. If an association charges admission to an event where it is serving alcohol, it can be liable for injuries or deaths that may occur as a result of alcohol consumption. (Ennabe v. Manosa.) If money changes hands, whether charging admission, charging for drinks, or accepting "donations" for the event, the association's exposure to liability is significantly increased.
Obviously Intoxicated. Serving alcohol to an obviously intoxicated participant could result in a misdemeanor: "Every person who sells, furnishes, gives, or causes to be sold, furnished, or given away, any alcoholic beverage to any habitual or common drunkard or to any obviously intoxicated person is guilty of a misdemeanor." (Bus. & Prof. Code § 25602(a).)
Catering. If the association hires a bartender or caterer to serve food and alcohol, the board should make sure the person/company has insurance and the association is named as additional insured for the event. The board should also contact the association's insurance agent to find out if the amount of insurance is sufficient and if the association should purchase its own coverage for the event.
BYOB Events. Sometimes associations will hold events where members are allowed to "Bring Your Own Beverage." Even though the association is not serving alcohol, there continues to be exposure to liability if participants get drunk and injuries occur. Participants should be told they cannot bring liquor to the event, only beer or wine. Volunteers should be assigned to watch for anyone who is visibly drunk and gently guide them home. The board should make sure the association's insurance will cover any alcohol related injuries.
Liquor License. For information about liquor licenses, see California's website for Alcoholic Beverage Control.
Insurance. General liability policies do not cover liquor liability. Associations need to obtain "host liquor liability" insurance. This is a special liability form that covers individuals or organizations (not engaged in the business of distilling, selling or distributing alcoholic beverages) that sponsor or host events where liquor is served without charging for it. Special event insurance can be purchased through the associations insurance agent or through "The Event Helper."
Recommendations. If the association is sued, it may ultimately avoid liability but it will have to endure the litigation. It is better to avoid the problem altogether by limiting the alcohol to beer and wine and not allowing guests to consume too much. Whenever the association is serving alcohol at an event, the board should take some sensible precautions to minimize potential liability. Some of those precautions include:
- make the premises safe,
- invite members only, not the general public,
- do not charge admission,
- do not charge for the drinks,
- serve only beer and/or wine (and non-alcoholic drinks and food),
- establish a 2-drink limit (handout two drink tickets per attendee),
- do not serve anyone under the age of 21 (check IDs),
- do not serve a visibly intoxicated person,
- stop serving alcohol well in advance of the event's ending time,
- provide transportation home for those who may need it, and
- take out host liquor liability insurance for the event.
Private Events
Sometimes owners will reserve the common areas for a private party that may include the serving of alcohol. As part of its application for reserving the clubhouse or any other common areas for private events, associations should include an indemnity and hold harmless agreement. The agreement protects the association in the event there are injuries or losses arising from the event. The hold harmless portion of the agreement means the host agrees not to file claims against the association. The indemnity portion means the host will pay the association's legal fees and any judgment in the event a third party sues the association. Associations can also require the event sponsor to take out insurance for the event and name the association as "additional insured."
Alcohol at the Pool
QUESTION: We have frequent problems with alcohol at the pool, where people are drinking all day. They are getting drunk and causing problems for staff and guests. Can we search coolers to prevent glass and alcohol from being brought into the pool area?
ANSWER: In addition to impaired judgment caused by alcohol consumption, there is the risk of injury from broken glass. If an alcohol-related injury or death occurs in your pool or spa, the association will almost certainly be sued. Even if the association is ultimately found not liable for the injury/death, the claim can drive up insurance rates.
Potential Liability. Your board is already on notice of three sources of serious injury: broken glass, altercations, and drownings--all related to alcohol at the pool. If injuries occur and litigation erupts, directors could find themselves in front of a jury answering questions about why they did nothing to protect members from injury or death.
Privacy Issues. Inspecting coolers is a reasonable solution. It's easier to stop alcohol at the gate than to force a combative drunk out of the pool area. Is this an invasion of privacy? Sports stadiums, concert venues, and airports inspect backpacks, coolers, and luggage every day without violating the law. If someone refuses to open a cooler, they can leave it outside the pool gate.
Recommendation: If you don't have rules against alcohol and glass at the pool, you must properly adopt them. If rules are already in place, you don't need to revise them to include inspection of coolers. Even so, it would be best to give the membership notice that you will inspect coolers. Make sure you explain why--to protect the safety of those using the pool, to avoid costly litigation, and to keep insurance premiums down.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.