Some insurance companies have indicated that claims related to COVID-19 will be denied (depending on the nature of the claim and the specifics of the individual policy). In light of this risk, what protections exist for the individual board members in the event of a claim where insurance coverage does not apply? The good news is that board members are generally personally protected from such claims so long as the board member was exercising his or her reasonable business judgment in reliance on the advice of professionals. However, this protection does not prevent a claim from being filed, necessitating a defense. In most instances, the costs of this defense will become an association expense where insurance denies coverage.
The first place to look for the details specific to your association is in your governing documents. Depending on the age of the documents, an indemnification clause or other board member protection may be found in your declaration, your bylaws, or your articles of incorporation. These documents often require the association to indemnify a board member for any claims against them individually that arise out of the board member’s actions and duties as a board member.
If the governing documents do not address the issue, state law contains provisions that provide board member protections as well. In general, CCIOA provides that board members who are elected by the membership are generally not liable for actions taken in the performance of their duties, except when the board member’s actions are wanton and willful.
Colorado’s Revised Nonprofit Corporation Act provides additional guidance. This Act limits the liability of directors for acts performed in good faith. The Act further permits indemnification for directors (current or former) so long as the conduct was performed in good faith and was in the nonprofit corporation’s best interests. The Act allows the Association to either advance or reimburse a director’s expenses incurred in defending an action against such director.
Therefore, even when there is no insurance coverage, it is clear that there are protections for individual board members who are performing their duties to the association in good faith. However, the association ultimately remains responsible for the expense of defending an action brought against a board member. In the event of claims against a board member or the association itself, such defense expenses will be considered common expenses that ultimately all members of the community will be obligated to pay.
Remember, as always, to discuss this sort of matter with your attorney as they can provide you with advice specific to your association’s governing documents, and your situation.