A fiduciary duty comes with being on a homeowners’ association board and the significance the position holds. Likewise, many well-intentioned individuals who run for election to a board do not fully understand the onus of what they are taking on. Insurance agents can help HOA clients get a better handle on the fiduciary nature of board service.
The Value of Fiduciary Duty
Giving your clients a better understanding of HOA’s fiduciary duties can help you support their risk management strategies, offer them practical guidance on liability concerns, and prompt them to address potential gaps in coverage.
HOA Duties of Care
Board members must carry out the duties of the offices they hold in keeping with a fiduciary duty of care. Additionally, duties of care have lofty legal significance because they play a crucial role in defining parties’ rights, responsibilities, and remedies. Fiduciary duty is significant, and there is trust that comes with it. Therefore, an alleged breach of this duty is the crux of all claims involving fiduciary negligence or mismanagement.
The individual property owners who make up a membership elect officers and directors to represent their interests. In effect, they entrust the board to manage critical financial and legal matters on the association’s behalf. The outstanding level of trust and reliance members assign to their boards creates a fiduciary relationship and responsibility.
Fiduciary Responsibilities for Board Members
As fiduciaries, the board must put the association’s collective interests before their own. They must be conscientious about potential conflicts of interest in any management activities. For example, directors who persuade a board to award service contracts to a company they own may breach their fiduciary responsibility.
Board members must also carry out all the functions associated with their individual roles on the board with general proficiency competence. They must practice full compliance with the association’s governing documents and bylaws and closely adhere to state law regulating HOAs governance. Thus, improper accounting or record keeping could violate state law and amount to legally actionable fiduciary mismanagement.
HOA Directors & Officers Liability Insurance
Every HOA client should have a D&O liability insurance coverage to protect their board members. Therefore, if a homeowner initiates a claim alleging that board members have breached their fiduciary duty, they could face personal legal liability. A directors & officers insurance policy can help to pay for legal costs, settlement agreements, or court-ordered awards for damages. Without this coverage, homeowners may understandably see too much risk in the prospect of board service. Consequently, boards will then struggle to recruit and retain qualified members.
Ultimately, informing your clients about fiduciary duty roles can help them make well-informed risk analyses and take appropriate measures to protect themselves. Targeted initiatives to ensure that a boards’ governance is consistent with a fiduciary duty of care can help to prevent some of the most common claims against associations and individual board members. Lastly, comprehensive insurance that includes officers and directors liability protection can help to safeguard boards against serious liability risks.
About Kevin Davis Insurance Services
For over 35 years, Kevin Davis Insurance Services has built an impressive reputation as a strong wholesale broker offering insurance products for the community association industry. Our president Kevin Davis and his team take pride in offering committed services to the community association market and providing them with unparalleled access to high-quality coverage, competitive premiums, superior markets, and detailed customer service. To learn more about the coverage we offer, contact us toll-free at (855)-790-7393 to speak with one of our representatives.