Community associations are governed by boards of directors made up of volunteers. The role of these volunteers is crucial to keeping community associations functioning, but potential volunteers are often dissuaded by their fear of potential liability. This is a misconception. California law has evolved considerably to provide a robust framework of shields for volunteer directors. This article explores the statutory protections, insurance options, and governing document provisions that together safeguard volunteer directors, ensuring they can perform their essential roles without undue personal risk.

What is a volunteer?
Corporations Code section 5239(b) defines “volunteer” as “the rendering of services without compensation.” “Compensation” is further defined as “remuneration whether by way of salary, fee, or other consideration for services rendered.” However, the Corporations Code specifically allows for the payment of per diem, mileage, or other reimbursement expenses. While it may be tempting to offer perks to get owners in the community to participate on the Board, community association Boards should be careful to avoid offering any perks that could be considered compensation. For example, assigned parking spaces could arguably be consideration for services rendered as parking spaces have a monetary value.

Statutory Protections
Public Policy
Corporations Code section 5047.5(a) addresses the services of directors and officers of nonprofit corporations as “critical to the efficient conduct and management of the public service and charitable affairs of the people of California.” This Corporations Code section also codifies as California public policy the state’s decision “to provide incentive and protection to the individuals who perform these important functions.”

Business Judgment Rule
Corporations Code section 7231 establishes the Business Judgment Rule which protects directors from personal liability when the directors perform their duties in good faith, in a manner such directors believe to be in the best interests of the corporation, and with such care, including reasonable inquiry, as an ordinarily prudent person in a similar position would in similar circumstances.

Civil Code Section 5800
Civil Code section 5800 provides additional protections for volunteer directors who own no more than two (2) homes within the community. Volunteer directors and officers are not personally liable in excess of the community association’s insurance coverage so long as the community association has maintained the minimum levels of general liability and D&O insurance as required by law and the volunteer directors and officers’ actions were performed in good faith, within the scope of their duties, and were not willful, wanton, or grossly negligent.

Directors and Officers Insurance
Directors and Officers Insurance, commonly referred to as D&O insurance, protects both the community association from liability and volunteer directors and officers from personal liability for errors and omissions made by directors and officers while they were serving on the Board. All community associations are required by law to maintain minimum levels of D&O insurance.

Governing Documents
In addition to statutory protections and D&O insurance, volunteer directors may also find additional protections in their community association’s CC&Rs and/or Bylaws. Some, but not all, CC&Rs and Bylaws contain indemnity provisions that offer protections for directors and officers against their negligence and omissions. Since every community association has unique CC&Rs and Bylaws, each community association should consult with their legal representation to see whether there are protections for the volunteer directors.

Conclusion
Potential Board members should not let fear of personal liability keep them from running for the Board. So long as their Association retains the adequate amount of D&O insurance and they perform their duties in good faith, in a manner they believe to be in the best interests of the corporation, and with such care, including reasonable inquiry, as an ordinarily prudent person in a similar position would in similar circumstances, California law, D&O insurance, and potentially even the governing documents will provide protections against personal liability.