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Subject: using HOA fees for the board Presidents legal fees
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LayneC
(Idaho)

Posts:1


04/06/2019 11:37 AM  
The President of the board of our HOA is using our community funds to pay for his legal fees. He is being sued for slander of the previous Management company. Is this right? Is this legal for him to do?
SheilaJ1
(South Carolina)

Posts:55


04/06/2019 11:41 AM  
Posted By LayneC on 04/06/2019 11:37 AM
The President of the board of our HOA is using our community funds to pay for his legal fees. He is being sued for slander of the previous Management company. Is this right? Is this legal for him to do?


Was the president on the board while the slander took place?

So the board decided to go with another management company and the MC then sued the president, interesting.


AugustinD


Posts:1498


04/06/2019 12:13 PM  
It is common for a HOA's governing documents to provide for "indemnification" of both directors and officers for acts performed in the course of their duties. It would be best if you read your HOA's Declaration (CC&Rs) and Bylaws and report back on what they say about indemnifying directors and officers.

Many states also have statutes that require indemnification of officers and directors. But I do not see such a statute for Idaho.

It is not uncommon for HOA management companies or HOA managers to claim that directors or officers defamed them. I would say that, when the HOA has insurance, often times said management staff are looking for a quick settlement. Many an insurer is happy to comply, especially if the insurance contract has what is known as a "hammer clause."

If you can check your HOA's governing documents

Any competent attorney will observe that slander cases are hard to win. Of the cases that are won, the court often awards a total damages amount of one dollar. This is to inform the plaintiff that he or she did not suffer any meaningful damage, but thank you very much for wasting the court's time and taxpayer resources, and the court hopes you spent a fortune on your attorney, which no, we are not going to order the defendant to pay.

Another problem is that insurance companies do not care about the chances of winning in court. Insurers just want to minimize the costs of paying an attorney to defend a HOA officer or director. Supposedly this keeps the costs down for all HOAs. But it is costly to the reputation of the affected officer or director. On the third hand, destroying the reputation of a volunteer director or officer is exactly what some management staff want.
MelissaP1
(Alabama)

Posts:7990


04/06/2019 1:24 PM  
Yep. The HOA can pay for the President legal fees IF they did this acting as President of the HOA. If they were acting as an individual, then maybe not. However, the MC is going to have a hard time proving slander. They have to prove they indeed lost business due to the slanderous actions of the President.

Example: President of HOA is asked by another HOA "What do you think of this MC?". The President tells them "The MC is a horrible dishonorable company to do business with". The MC gets wind of this and has to prove the other HOA did not hire them based on those words. (Slander). Now if the President post on their own personal facebook page the MC is a horrible company, then that may be actions of an individual. If they posted it on the HOA page, then not so much.


This is basically usually covered by the HOA insurance. It's what it's for. So Yes the HOA can/will pay for the legal expenses of the President. Which that money comes out of the HOA budget.

Former HOA President
JohnS111
(New York)

Posts:13


04/06/2019 3:05 PM  
Yes, it's fully legal. I'd think that D&O insurance would cover it, though.
RichardP13
(California)

Posts:3424


04/06/2019 5:38 PM  
Posted By MelissaP1 on 04/06/2019 1:24 PM
Yep. The HOA can pay for the President legal fees IF they did this acting as President of the HOA. If they were acting as an individual, then maybe not. However, the MC is going to have a hard time proving slander. They have to prove they indeed lost business due to the slanderous actions of the President.

Example: President of HOA is asked by another HOA "What do you think of this MC?". The President tells them "The MC is a horrible dishonorable company to do business with". The MC gets wind of this and has to prove the other HOA did not hire them based on those words. (Slander). Now if the President post on their own personal facebook page the MC is a horrible company, then that may be actions of an individual. If they posted it on the HOA page, then not so much.


This is basically usually covered by the HOA insurance. It's what it's for. So Yes the HOA can/will pay for the legal expenses of the President. Which that money comes out of the HOA budget.



If the president is indeed covered by the D&O Insurance, why is the HOA paying the legal fees. If the HOA is paying the legal fees, the they aren't covered by the insurance company. I wonder why?
JohnC46
(South Carolina)

Posts:8195


04/06/2019 5:46 PM  
I assume as a first time poster, they do not understand the whys and way fors. Happens all the time. First time posters come out looking for an answer they want.
LanceG1
(Georgia)

Posts:42


04/06/2019 6:10 PM  
Let's give this poster the benefit of the doubt and try to be helpful -vs- trying to determine their intent. Everyone has to start from somewhere they they are learning about these things...and there is a lot to learn.
RichardP13
(California)

Posts:3424


04/06/2019 7:03 PM  
Benefit of the doubt? Helpful? Regular posters gave the wrong advise or wrong answer.
MelissaP1
(Alabama)

Posts:7990


04/06/2019 7:51 PM  
The legal fees could count as damages. Which if add up enough they can be covered by insurance. The HOA could have asked the insurance company to have their lawyer to represent their client. It's a bit complicated but it could be an insurance claim in the end. Still have to pay the insurance deductible.

Former HOA President
RichardP13
(California)

Posts:3424


04/06/2019 8:48 PM  
UNBELIEVABLE
TimB4
(Virginia)

Posts:16257


04/07/2019 4:53 AM  
Typical D&O insurance polices have exclusions. This may be one of them.
I've yet to see a statute or governing document that doesn't have all board members and committee members indemnified by the Association (hence the reason for D&O insurance).
GenoS
(Florida)

Posts:2825


04/07/2019 10:19 AM  
Posted By JohnC46 on 04/06/2019 5:46 PM
I assume as a first time poster, they do not understand the whys and way fors. Happens all the time. First time posters come out looking for an answer they want.

That's what I immediately thought. Notice how LayneC left as soon as he/she didn't hear what he/she wanted to hear.
GenoS
(Florida)

Posts:2825


04/07/2019 10:25 AM  
Posted By TimB4 on 04/07/2019 4:53 AM
Typical D&O insurance polices have exclusions. This may be one of them.
I've yet to see a statute or governing document that doesn't have all board members and committee members indemnified by the Association (hence the reason for D&O insurance).

I'm not sure I completely understand this, but my understanding is that indemnification kicks in when the D&O carrier declines to provide an attorney. In other words, say, D&O insurance declines to pay for an attorney (for whatever reason). If a person is indemnified by the association then the association has to pay for the person's attorney; sometimes in advance.
RichardP13
(California)

Posts:3424


04/07/2019 11:20 AM  
Indemnification would kick in when the association believes an officer acted in good faith. If the insurance company decided not to act, it might mean they did not feel the officer acted in good faith, therefore shouldn't the association take the same posture? The decision on whether the association pays the legal expense of a director MUST be a board decision.
GenoS
(Florida)

Posts:2825


04/07/2019 12:57 PM  
I can see that as appropriate. Indemnification is a board decision in many cases.

The D&O policy covers the board and all committee members and other volunteers as long as they're officially recognized by name in board meeting minutes.

Our indemnification clause applies to directors and members of the Architectural Control Committee only. That needs to be updated ASAP I think but the fastest way to get someone's eyes to glaze over is mention the word "indemnification" to them. It works even faster than "reserves".
RichardP13
(California)

Posts:3424


04/07/2019 4:52 PM  
Posted By GenoS on 04/07/2019 12:57 PM
I can see that as appropriate. Indemnification is a board decision in many cases.

The D&O policy covers the board and all committee members and other volunteers as long as they're officially recognized by name in board meeting minutes.

Our indemnification clause applies to directors and members of the Architectural Control Committee only. That needs to be updated ASAP I think but the fastest way to get someone's eyes to glaze over is mention the word "indemnification" to them. It works even faster than "reserves".



You left out a key phrase, IF THEY ACTED IN GOOD FAITH". Slandering someone may not have been acting in good faith!
AugustinD


Posts:1498


04/07/2019 4:59 PM  
Posted By RichardP13 on 04/07/2019 4:52 PM
You left out a key phrase, IF THEY ACTED IN GOOD FAITH". Slandering someone may not have been acting in good faith!


Lying to one's fellow board members about a manager's performance, so as to avoid a frivolous accusation of slander, is also not acting in good faith.
RichardP13
(California)

Posts:3424


04/07/2019 5:12 PM  
I am sure the courts are backed up waiting to hear all those cases.
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