HOA boards can be sued and not covered by insurance

Much of the abuse by boards, the management firms, and attorneys are tortious acts that are illegal and also constitute a fraud upon the members. You will not hear this at pro-HOA seminars sponsored by local governments and/or taught by CAI attorneys.

“D & O” means “directors and officers.”

“Most, if not all, D&O policies contain a provision that excludes intentional criminal and fraudulent acts committed by board members,” says Collins. “However, [our policy] will continue to defend the directors and/or officers until such time that a criminal action can be proven. The policy will then cease to provide any further protection once it is determined that a board member knowingly committed a criminal or fraudulent act.”

D&O coverage also doesn’t indemnify a board or board member against decisions made “in bad faith,” or with illegal intent. If a board is found to have acted in an illegal manner—deliberately discriminating against a prospective buyer, for example—and are hit with punitive damages, members are on their own when it comes to paying them.

The reason for pursuing these actions acts of bad faith is to force the homeowner into court, where the attorney gets his fees and the HOA gets a free ride, most of the time.  Directors and officers are legally bound to act in good faith toward their members.

The ABC’s of D&O

See also Will legislators stop CAI attorney acts of bad faith?

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"The Voice for HOA Constitutionality". I have been a long-term homeowner rights authority, advocate and author of "The HOA-Land Nation Within America" (2019) and" Establishing the New America of independent HOA principalities" (2008). See HOA Constitutional Government at http://pvtgov.org. My efforts with HOAs took me to a broader concern that was deeply affecting the constituionality of HOAs. Those broad societal and plotical concerns caused me to start this new blog for my commentaries on the State of the New America.

10 thoughts on “HOA boards can be sued and not covered by insurance”

  1. Can a Board or Director or group be held liable and/or personally responsible for decisions made in bad faith that affect the entire HOA?
    How does an association hold the Board accountable for making decisions that have been properly vetted, and that benefit the whole, and not just an individual (Board member)?

  2. HOA’s & the Directors in Oregon or elsewhere can be sued in State Court or Federal Court for “Willfully, Knowingly & Flagrantly” not abiding by their CCR’s, By-Laws & State Laws, wherein they have committed Fraud or committed a Felony by Illegally spending over the 5% limitation on the Trust Fund Account without a vote of the majority of the homeowners. This holds true for contracting with an outside party, be it a construction company or an attorney, without the majority consent of the Homeowners. Most of these acts are “Tortious”, including a hired attorney who advises the board members not to participate in an Arbitration Hearing, which is required by State Law, when a homeowner files in court to put the Association into Receivership, until a new board can be elected. The bad thing about this is, the homewners have to pay the cost, equally divided, for the required 10 day notice to all homeowners that a meeting to elect 3 directors is required. Until there are 3 NEW directors elected the cost of the Receivership continues.

    1. WOW!!!!!!! Sounds like they are a bit excited and angry and feel the need to criticize HOAGOV. The first time in over 11 years that have I received a direct response from the pro-HOA legal-academic aristocrats, in spite of my voluminous writings. I feel honored!

      Please wait one. Lunch time. I will read and comment shortly.

  3. Reservation of Rights: an insurer’s notice to an insured that coverage for a claim may not apply.
    Such notification allows an insurer to investigate a claim to determine if coverage applies (in whole or in part) without waiving its right to later deny coverage based on information revealed by the investigation. Although a reservation of rights protects an insurer’s interests, it also alerts an insured to the fact that some elements of a claim may not be covered, thereby allowing the insured to take necessary steps to protect its potentially uninsured interests.

    When associations/board of directors make a claim for defense and indemnification coverage under their policies, they often receive from the insurer a reservation of rights letter reserving the right not to indemnify particular claims for lack of coverage or because they are excluded. Some reservation of rights notices/letters recite a litany of possible reasons the insurer may later choose to deny coverage, generally producing high anxiety in the insured who purchased the policy to protect against liability for loss to others and from having to pay the defense costs involved in a claim against the association and its board of directors (management company).

    A reservation of rights notice generally informs the insured of coverage and policy defenses which may include the following:

    Coverage Defense: A coverage defense is one by which the liability insurer asserts that a given claim is or may not be covered by its policy

    Policy Defense: A policy defense is one by which the liability insurer admits coverage of the claim but asserts that the policy is not enforceable due to the breach of a policy condition by the insured.

    Right to Reimbursement for Defense Fees: The reservation of rights notice may provide the insurer with the right to seek reimbursement for defense costs it pays if it later establishes that those costs were incurred in defending non-covered claims.

    Right to Reimbursement of Amounts Paid to Settle: In some states an insurer that settles an action against its insured may be entitled to reimbursement of that portion of the settlement payment that is attributable to non-covered claims.
    In many jurisdictions (Arizona), the reservation of rights may allow the insurer to withdraw from the defense when there is no potential for coverage under the policy. The notice allows insurers to decline indemnifying the insured for any portion of a judgment not covered under the policy.

    Wrongful Acts (Exclusions): AIG (typical of most D&O policies)

    The Insurer shall not be liable to make any payment for Loss in connection with a Claim made against an Insured arising out of, based upon or attributable:

    …to the gaining in fact of any profit or advantage to which an Insured was not legally entitled;

    to the committing in fact of any criminal, or deliberate fraudulent act…(plus 15 additional wrongful act exclusions detailed in the AIG policy)

  4. I thought the following email was worth posting:

    Members reading their association’s D&O policy, particularly noting its claims coverage, exclusions (wrongful acts) and insured’s notice requirements may find the association and its board of directors’ coverage and/or defense costs (retention) sadly wanting.

    Recognize there are a limited number (shrinking number) of insurers willing to insure associations and their boards of directors.

    Travelers and AIG both declined to renew TCA’s D&O policy and Travelers noticed the association’s lawyers it would no longer require their services on behalf of Travelers in Arizona.

    “…deliberately fraudulent or dishonest act or omission or any purposeful violation of any statute or regulation (exclusion shall not apply unless a judgment or other final adjudication establishing a deliberate or dishonest act, omission or purposeful violation)…” Travelers Non-Profit Management and Organization Liability Insurance Policy (TCA, Inc.)

    Contrary to your association’s lawyer’s demand that you not communicate with the association’s insurer, you have an absolute right to put pen to paper and advise the insurer of your association’s and its lawyer’s conduct (fraudulent or dishonest act or omission or any purposeful violation of any statute or regulation), breach of fiduciary (derivate fiduciary liability…lawyer’s aiding and abetting its client’s misconduct), violation of federal or state law, violation of federal, state, county or municipal rules, regulations, codes and/or polices or that your association, board of directors, managers and lawyers have simply acted stupidly…again! When your association’s lawyers demand you not communicate with the association’s insurer, tell them to eat shit and die.

    Recognizing the sad state of affairs in associations across the country, many insurers’ first act upon receiving an association’s claim is to notice the association of the insurer’s reservation of rights (See Reservation of Rights attached).

    Some insurers exclude any coverage for select association members (see AIG, No coverage re WMB) or make defending select association members’ complaints exponentially expensive (see Liberty Insurance Underwriters, Inc., $75,000 retention re WMB vs. $15,000 retention for all other 1379 members)

    Sadly, when homeowner members remain silent (Arizona Legislature/DFBLS/OAH/Superior Court/appellate courts and other) re the conduct of their association and its lawyers (State Bar of Arizona/Board of Governors/Supreme Court Disciplinary Commission and other), the record evidences that with 100% certainty the conduct will continue.


  5. Once Gary put this HOA Board on notice that Federal Fair Housing Laws were in play, every statement that was made against us, every action that was taken against us was in bad faith. Retaliation against a person who has helped another person exercise their FFH Housing rights is a federal crime.

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