HOA Board Members & Fiduciary Duties:What You Must Know to Fulfill Your Duty to Your

Association and Protect Yourself from Personal Liability

A Webinar for Condo and HOA Boards

Panelists:

Debra A. Warren, PCAM, Associa

Matthew Zifrony, Esq., Tripp Scott

HOA Board Members

and Fiduciary Duties

Scenario 1:

What would you do?

You are the President of the Board. To

thank you for the recent renewal of the

insurance policy, your insurance agent,

Bruce Black, has invited to play golf at the

new PGA course in town. The course is

for members only and one you have

wanted to play since it opened.

What would you do?

Poll:

Accept and put my clubs in the car

Accept the invitation, but insist on

paying my own green fees

Decline the invitation

Scenario 2:

What would you do?

Your condominium community has just passed a

special assessment to perform repairs on the

exterior of the buildings. The buildings are

currently leaking and many units have damaged

interior walls and fixtures. Three of the board

members live in building C and you just

discovered that it has been scheduled first for

the repair, although most of the damage is in

building A. You are a board member who does

not live in building C.

What would you do?

Poll:

Vote against the plan to begin in Bldg C

Ask the contractor to share his expert

recommendation to the board

Talk to the board members in Bldg C

about changing the plan

Send a letter to the members

disagreeing with the plan

Defining Fiduciary

• The term “fiduciary” refers to a relationship in which one person

has a responsibility of care for the assets or rights of another

person.

• In a condominium or HOA, the board of directors, as a body, has a

fiduciary responsibility for the decisions they make with regard to

the association’s assets and the rights of the owners

• The fiduciary responsibilities of the members of an association's

board include:

– Acting in the interest of the association rather than the

member's personal interest

– Avoiding conflicts of interest

– Providing oversight to assure that the association follows the

law

Duty of Care

Doing your best to perform your responsibilities.

• Attending meetings

• Reading materials in advance of board meetings

• Voting

• Asking questions to assure you understand the

issues before voting

• Participating on committees

• Supporting the actions of the board

Fiduciary Duties of the Board

Duty of Loyalty

Performing you duties in a matter that protect the

corporation.

• Set aside personal agendas

• Put the needs of the corporation first

• Maintain confidentiality

• Disclose conflicts of interest

Fiduciary Duties of the Board

Acting in a Representative Capacity

Performing your duties for and on behalf of an

association as an authorized officer, agent or other

representative

• Set aside personal agendas

• Put the needs of the corporation first

Representative Capacity

• Act within their authority

• Exercise due care

• Act in good faith

• Act with ordinary care that they believe to be in

the best interests of the association

Business Judgment Rule

• Legal – Attorney Client Privilege

• Owner – Account History and Payment Status

• Owner – Enforcement

• Owner – Privacy

• Staff/Employees – Documents that result from

employment processes, health insurance, etc.

Confidentiality Requirements

Conflict of Interest

Definitions:

A situation that has the potential to

undermine the impartiality of the individual

because of a conflict between their

personal interest and professional

responsibility.

Conflict of Interest

Characteristics:

1. The board member receives a benefit

directly or indirectly related to their

position with the community association?

2. The board member will receive a personal

benefit from the community association,

or a third party?

Best Practices

In 2009, the Community Associations

Institute has published a Model Code of

Ethics for Community Association Board

Members. Some of the provisions that

reinforce fiduciary duty are:

Best Practices

• Strive at all time to serve the best interest

of the association as a whole regardless of

their personal interests

• Act within the boundaries of their authority

• Perform their duties without bias for or

against any individual or group

Full Disclosure

• All conflicts of interest are not necessarily prohibited or

harmful to an association.

• Full disclosure of all actual and potential conflicts should

be made to the board so that the board can vote on

whether to proceed despite the conflict.

• A determination by the disinterested board members –

with the interested board member(s) recused from

participating in debates and voting on the matter – is

suggested.

Summary of D&O Coverage:

• D&O Insurance is liability insurance payable to the

directors and officers of an association or to the

association itself.

• Advances defense costs and reimburses for losses as a

result of a legal action brought for alleged wrongful acts

in the insured’s capacity as a director or an officer.

D&O Insurance

How to protect yourself

• Intentional illegal acts or illegal profits are typically not

covered under D&O insurance policies.

• Coverage only extends to "wrongful acts" as defined

under the D&O policy which usually includes specific

types of acts, omissions and misstatements while acting

for the association.

• Due to exclusions and as a matter of public policy,

coverage is not provided for criminal fraud.

D&O Insurance

Following are examples of

circumstances that have

happened – or could

happen - to board members

across the country.

If faced with each of these

situation, how would YOU

respond?

Application

Scenario 1:

What would you do?

You are the President of the Board. To

thank you for the recent renewal of the

insurance policy, your insurance agent,

Bruce Black, has invited to play golf at the

new PGA course in town. The course is

for members only and one you have

wanted to play since it opened.

What would you do?

Poll:

Accept and put my clubs in the car

Accept the invitation, but insist on

paying my own green fees

Decline the invitation

Scenario 2:

What would you do?

Your condominium community has just passed a

special assessment to perform repairs on the

exterior of the buildings. The buildings are

currently leaking and many units have damaged

interior walls and fixtures. Three of the board

members live in building C and you just

discovered that it has been scheduled first for

the repair, although most of the damage is in

building A. You are a board member who does

not live in building C.

What would you do?

Poll:

Vote against the plan to begin in Bldg C

Ask the contractor to share his expert

recommendation to the board

Talk to the board members in Bldg C

about changing the plan

Send a letter to the members

disagreeing with the plan

Scenario 3:

What would you do?

A fellow board member is the chair of the

landscaping committee. The current

project of the committee is to select the

annual flower rotations at the entry. On

your daily walk you notice that this board

members front yard contains new

plantings that are identical to the ones

planted in the entry?

What would you do?

Poll:

Hope that others don’t notice

Call the Manager

Call the Board President

Have a private conversation with the

board member and educate them on

conflicts of interest

Scenario 4:

What would you do?

You are a member of the Board. Prior to your

election, you and your wife have been working

on designing a new backyard that will turn you

house into your dream home. There are some

controversial components that may not comply

completely with the current Architectural

Guidelines. The current board is split two votes

in favor of your design and two votes against.

You know how important this project is to your

wife.

What would you do?

Poll:

Vote in favor of the plan

Abstain from the voting on the issue

Ask the landscaper to modify the

current plan

Do the work without submitting the

application

• The Legal Definition of a fiduciary

• Specific requirements and responsibilities

• Tips to understand potential conflicts

• The Business Judgment rule

• Full Disclosure Requirements

• D&O Insurance

• Test your understanding

In Review

Q & A

Contact

Matthew Zifrony

Tripp Scott

Ft. Lauderdale, FL

www.trippscott.com

Tel: (954) 760-4918

Debra A. Warren, PCAMAssocia®San Rafael, CA

www.associaonline.com

Tel: (415) 453-1281

HOA Board Members & Fiduciary Duties:What You Must Know to Fulfill Your Duty to Your

Association and Protect Yourself from Personal Liability

A Webinar for Condo and HOA Boards

Panelists:

Matthew Zifrony, Esq., Tripp Scott

Debra A. Warren, PCAM, Associa