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Indemnity Does Not Always Protect HOA Directors (3 of 4)

| Mar 2, 2017 | HOA

Indemnity for an HOA Director does not mean a Director can take actions or fail to take actions without incurring liability.  To avoid liability a Director must act in accordance with the “business judgment rule” and with diligence.

In the case of Palm Springs Villas II HOA v Parth (2016) 248 Cal.App. 4th 268, the Appellate Court reviewed the finding on a Motion for Summary Judgment which determined that the Director in that case was not liable for her acts and failure to act because she was protected by the business judgment rule and the exculpatory clause in the Declaration of Conditions, Covenants and Restrictions (“CC&Rs”).  The Appellate Court reversed the lower court’s decision rejecting the Director’s defense based upon the business judgment rule and the exculpatory clause in the CC&Rs.

The Appellate Court ruled that both the business judgment rule and the exculpatory clause in the CC&Rs require a Director to act in good faith.  The Director’s lack of diligence in performing her duties negated the good faith requirement; and, therefore, she was found liable.

The indemnity statutes and provisions in CC&Rs are for the protection of HOA Directors who diligently act in accordance with the business judgment rule for the benefit of the HOA and not themselves or other individuals.

Although this case involved an HOA Director, the Directors of all nonprofits must follow the same or similar rules for their protection from liability.

If you would like to explore the limits of liability protection for HOA Directors, please contact Ariel Bedell, Esq. at The Loftin Firm, P.C.

The above information is general information and is not intended as legal advice.