Tuesday, September 15, 2015

Protect Yourself

Through the years this blog has covered several aspects of Board member liability.  One additional item for your consideration is the use of indemnification agreements.  These provide a more inclusive protection than what you might find in State statutes or your community's governing documents.  These agreements contain detailed procedures and time frames - and clarify the types of claims covered.  If you decide to utilize this option, consider clarifications in the following areas:

Expenses.  Protect yourself against expenses connected with any proceeding, by expanding the definition of “Expenses” to cover items often excluded in a D&O policy:   fines & damages, experts’ and arbitrators’ fees, bonds, settlements, and income taxes resulting from payments.  Proceedings should include any threatened or pending legal proceeding such as investigations, discovery requests, and administrative proceedings.

Fees-on-Fees.  Directors are not necessarily entitled coverage for legal costs needed to sue the Association to enforce your indemnification rights - be sure this is added! 

Insurance.  Require that the Association have its D&O coverage audited to obtain the highest quality insurance available in the homeowner association industry.

Express coverage for negligence.   An all-inclusive provision may be voided because it is overly broad.  Be sure that your agreement explicitly covers all negligence except gross negligence.   Here are a couple of court cases that talk about this quirk in Georgia law:  Service Merchandise Co. v. Hunter Fan Co   "Georgia courts never imply an agreement to indemnify another for one’s own negligence in the absence of express language.”    Satilla Community Service Board v. Satilla Health Services, Inc   "Contracts indemnifying one against the consequences of his own negligence are not favored, but will be given effect where the intent is expressed in plain and unequivocal terms." 

Procedures and Timing.  The agreement can require that the Association, when settling a claim against you, include an unconditional release from all liabilities relating to the proceeding, along with an acknowledgement that you deny all wrongdoing.  Require all indemnification payments be made within 30 days, and all advances within 20 days of a written request.   In the event of an adverse ruling, you can appeal, and be indemnified for all expenses.  Include a presumption in favor of indemnification, that you have met the applicable standards of conduct allowing for indemnification, and that a judgment, settlement, or criminal conviction does not create a presumption against indemnification.  And impose a reasonably short period on any claim that the Association might have against you.

It is important that you require immediate money advances to cover defense costs, regardless of whether you are the subject of a lawsuit, investigation or witness subpoena, with coverage continuing for your legal expenses - even after you leave the Board.

The above is not to be considered legal advice, and you should consult with a legal professional before acting. 

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