Personal liability of board members

Two layers of protection, not one

The first layer comes from Congress. The Volunteer Protection Act of 1997 shields an unpaid director (or one who receives no more than $500 a year, plus expense reimbursement) from personal liability for harm caused while acting within the scope of their role, as long as they held any license the task required and did not cause the harm through willful or criminal misconduct, gross negligence, or reckless disregard for safety.

"No volunteer of a nonprofit organization or governmental entity shall be liable for harm caused by an act or omission of the volunteer on behalf of the organization or entity."

Source: 42 U.S.C. § 14503, U.S. Congress, via Cornell Law School LII

Many states add a second layer. California, for example, separately protects a volunteer officer or director from personal liability beyond the association's own insurance if the act was in good faith, not willful, wanton, or grossly negligent, and the association carries a minimum amount of liability and D&O insurance tied to its size. Check whether your own state has an equivalent statute and what it requires.

What the shield does not cover

The federal Act carves out four things: willful or criminal misconduct, gross negligence, reckless or conscious indifference to safety, and harm caused while driving a vehicle that legally requires a license or insurance. Ordinary carelessness, like approving a maintenance contract that turns out to be a bad deal, is exactly the kind of mistake this immunity is built to cover. Fraud and self-dealing are not.

Just as important, this protection is personal to you. It says nothing about the association's own exposure.

"Nothing in this section shall be construed to affect the liability of any nonprofit organization or governmental entity with respect to harm caused to any person."

Source: 42 U.S.C. § 14503, U.S. Congress, via Cornell Law School LII

If a resident is hurt on a defective stairway, the HOA can still be found negligent and liable for the full loss, even while the volunteer director who approved the repair schedule stays personally immune.

Indemnification: a second, separate protection

Immunity stops a claim from reaching you personally. Indemnification is different: it is the association agreeing to reimburse your legal defense costs and any resulting liability after you have already been sued, typically written into the bylaws or the state's nonprofit corporation code. It is usually conditioned on the same good-faith standard as immunity.

"Conducted himself in good faith."

Source: N.C. Gen. Stat. § 55A-8-51, North Carolina General Assembly

The exact conditions and scope of indemnification are set by each state's nonprofit corporation code and by your own bylaws. Ask what yours says before you assume you're covered.

D&O insurance funds the promise

Indemnification is only as good as the association's ability to pay for it. That is what Directors and Officers insurance is for. A broker who works with community associations describes the coverage as protecting "directors, officers, and sometimes other volunteers of a community association from lawsuits alleging mismanagement or wrongful acts," from Associa. Like the statutes above, D&O coverage typically excludes fraud, personal gain, and criminal conduct, the same misconduct that voids every other protection on this page.