Do directors and officers have to worry about getting sued personally?

Around this time of year there usually is a call for candidates to submit their names to be directors of their condominium or homeowners’ association for vacant seats coming up at next year’s annual meeting. Most associations have five to seven director seats usually with either one-year terms or two-year staggered terms.

Many times it is hard to get owners to run for the board because of the time commitment needed to be given to such a part-time unpaid job. Another obstacle to service is the fear a director may be personally sued if one or more owners don’t like the way the director may carry out their job. Time commitment and suit fear may scare away good candidates from running for the open positions.

Luckily in Florida, most condominium and homeowners’ associations carry Directors and Officers Liability Insurance (D&O Insurance) to defend and protect the directors if they do get sued. In addition, the directors are indemnified by the associations both by provisions in their Articles of Incorporation as well as provisions contained in Chapter 617, Florida Statutes covering not-for-profit corporations.

Basically, under the relevant statutes and the association’s Articles of Incorporation, a director is not personally liable for monetary damages to the corporation or any other person for any statement, vote, decision, or failure to act regarding association management or policy unless the director’s breach of, or failure to perform, those duties constitutes: 1.) a knowing violation of the criminal law, 2.) a transaction from which the director derived an improper personal benefit, 3.) willful misconduct, or 4.) recklessness or an act or omission which was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety or property.

So, if a director does not do any of the aforementioned egregious acts, he or she will be indemnified by the association and will be covered under the association’s Directors and Officers Liability Insurance for legal defense and for damages if something went wrong as a result of alleged simple negligence and the director or officer was sued by an owner or third party.

It is important to remember that directors must act in a manner that a reasonable person would act. However, the director is not required to have any special knowledge in business or otherwise. If a reasonable person would think that an expert should be called in on a particular matter (such as an accountant, engineer or attorney), then such an expert should probably be called in before action is taken.

If an expert is called in, the directors and officers should follow the expert’s advice and if for some reason they don’t want to follow their advice, they should probably try to find another expert who can supply advice to support the act that they want to take. If they don’t find someone, who can stand by the act they want to take, then they probably should not then act in the unsupported manner as such act may then be considered reckless or in bad faith. If they then did get sued personally for their unsupported act, they may not then be indemnified by the association at that point nor protected by the Association’s D&O Insurance.

When association’s get sued for their officers’ or directors’ actions, we find it is rare that any of their actions were of such an egregious nature as to move outside the indemnity and insurance protections described for simple negligence. So if asked to run to be a director in your association, or if you get the inclination to do so, you should not use the fear of getting sued as an excuse not to. If you have the spare time and energy to put into the part-time job of being a director or officer, you will probably find your contribution to your community as rewarding on both a professional and a personal level.