One common means of protection is to legally incorporate the association. This method affords a substantial measure of protection to the association, although it is not an absolute solution. Some states—through nonprofit-corporations statutes—limit or eliminate directors’ personal liability for breaches of the duty of care.
Incorporation may be of less benefit to condominium associations than homeowners associations or planned communities. Condominium associations must pay the same start-up and renewal fees for incorporation as other associations; but, if they are sued, the owners will be liable since they hold a shared interest in the common elements. Whereas, if a homeowner association is sued, individual owners may avoid liability because the homeowners association usually owns the common elements.
Consequently, condominium association boards should compare the costs and benefits of incorporation carefully before taking this step.
Insurance One of the best ways for an association to protect its volunteers is to develop an effective liability insurance program. Such a program will enable volunteers to serve the association without risking personal assets. The most important coverages at the association level are provided by the commercial general liability and the directors and officers liability insurance policies. To be truly effective, these policies should have the following provisions:
- A broad, named-insured clause that includes the association, directors, officers, committee members, employees and other volunteers acting at the direction of the board
- Broad-based coverage
Individual homeowners, board and committee members should consider purchasing a homeowners’ insurance policy that provides a certain amount of liability protection and a personal liability umbrella policy that protects individuals serving on nonprofit boards.
Associations with a good insurance program will find it easier to recruit volunteers.