There is no question that a
community association benefits when its unit owner membership is interested and
involved in the life of the association. Such
...unit owner volunteers can pose
a risk of liability for the association in sometimes unexpected ways.
Liability
and D&O Insurance:
A board member and/or an association can be
sued for the actions a board member takes on behalf of the association. While
certain activities are more likely to generate claims than others, no action
taken by a board member is without risk of suit. Recognizing that possibility,
most governing documents indemnify the board member for actions taken in their
role as board members except in the most egregious of circumstances.
Additionally, given the liability risk, most associations understand the need
for Directors and Officer’s liability insurance (“D&O Insurance”) and have
policies in place which provide insurance defense and, where necessary,
indemnification to the board members and/or the association in the event a
lawsuit suit is filed in connection with a member’s actions on behalf of the
association while serving on the board. Liability in this context can stem from
the actions a board member takes or fails to take. While acting reasonably in
any given circumstance is a likely means of avoiding liability in most
circumstances, often times the costs associated with defending against a claim
can be significant. For that reason, even the best run associations and most
reasonable boards benefit from insurance coverage.
However, complications and
potential gaps in coverage arise when the individual acting on behalf of the
board is a volunteer and not a board member. In a circumstance where a unit
owner volunteer has been specifically authorized to act on behalf of the
association in a particular area, that volunteer may be viewed as an agent of
the association. Even in circumstances where no specific authority has been
vested in the volunteer, their role may create a circumstance where the
volunteer appears to have been acting on behalf of the association and they may
be treated as an agent of the board. In either case, as an agent of the
association, the volunteer’s actions or inaction may be imputed to the board,
that is, the board may be held liable for the actions of the volunteer. The
complications in such circumstance can be significant. For the volunteer, they
may find that because they are not a board member, they are not indemnified by
the association and that the association is not required to defend them or pay
any judgment that might enter against them. The volunteer may also learn that
the association’s insurance policy does not extend coverage to volunteers. From
the association’s perspective, it may learn that the volunteer’s action have
exposed it to liability but that the association’s policy provides no coverage
because volunteers are not identified as insured under the policy.
While one approach to addressing
this issue could be to ban volunteers, but that approach is not realistic and,
as discussed above, that step would deprive the association of substantial
benefit. The more realistic and beneficial approach would be to consider the
following steps:
- clearly limit the volunteer
role in this context to advisory and confer no independent decision making
authority on the volunteer (a good practice generally as the board should be
making decisions by a majority vote) and ensure that the volunteer’s limited
decision making role is well publicized;
- amend the documents so that
volunteers are indemnified by the association. That step should be taken in
consultation with counsel and it may not be advisable or palatable in all
circumstances. While addressing a concern for the volunteer, such step would
increase the association’s exposure and would almost certainly have to be
coupled with securing a policy of insurance which extended to volunteers;
- the volunteer should determine
whether its homeowners policy provides coverage and, if not, explore whether
such coverage can be added to the policy;
- ensure that the association’s
D&O policy extends to volunteers and treats such volunteers as insureds in
every instance as is necessary to provide the association with defense and indemnification
in the event an action or inaction by a volunteer results in a lawsuit against
the association. The board should consult with its insurance agent or other
insurance consultant with regard to the placement of the policy.
Worker’s
Compensation:
There is, similarly, liability risk for the
association in those circumstances where the unit owner volunteer is engaged in
physical activity on the property. While it is obvious that when an association
hires and pays an employee to perform services on the common areas, the
association must provide worker’s compensation insurance to that employee. It
is also necessary, though sometimes less obvious, for an association to ensure
that the contractors it engages provide worker’s compensation insurance for all
the employees that enter and perform work on the common areas as the
association could be the target of a claim under the Worker’s Compensation Act
by any injured employee of a contractor it engages.
It is far less obvious, and often
times overlooked, that volunteers who perform regular activities on behalf of
the association could be considered employees under the Worker’s Compensation
Act. That is not to suggest that any action taken by a unit owner as a
volunteer makes them an “employee” for purposes of coverage under the Act. If a
unit owner sees some trash on the ground and picks it up or sees a weed growing
in a flower bed and pulls it, that random, one-off activity is highly unlikely
to result in a unit owner volunteer being treated as an employee. However,
where a unit owner volunteer regularly performs work on behalf of the
association there is real risk that an injury to such volunteer could result in
a claim under the Worker’s Compensation Act. The problem for the association in
such circumstance is that the standard worker’s compensation policy provides
coverage only to paid employees not to unpaid volunteers that might otherwise
fit the definition of employee. If a volunteer is injured in such circumstance
the association may have liability under the Act which includes medical bills
which can be significant. It is advisable, therefore, that the association not
only obtain a worker’s compensation policy, but that the policy extend to unit
owner volunteers.
The presence of unit owners
willing to volunteer their time and talent is a fundamental good in most
community associations. With some simple advance work and planning the risks
associated therewith can be effectively managed so that the benefits are not
outweighed by the potential downsides.
Originally posted September 6,
2018 on
Tom is a former REBA President (2010),
Co-Chair of both REBA’s Residential Conveyancing and Unauthorized Practice of
Law Committees, and a founding partner of Moriarty Troyer & Malloy, LLC.
