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