Business Judgment Rule

California Corporations Code. Even though officers and directors are deemed fiduciaries, boards are not required by law to make the "right" decision. The California Corporations Code protects directors from personal liability if they make decisions that result in damage or loss to others, provided their decisions were made:

  • In good faith,
  • In a manner which the 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 like position would use under similar circumstances.

Davis - Stirling Act. As provided for in the Davis - Stirling Act, a volunteer officer or director is not personally liable in excess of the association's insurance for bodily injury, emotional distress, wrongful death, or property damage or loss as a result of the tortuous act or omission of the officer or director if all of the following criteria are met:

  • The act or omission was performed within the scope of the officer's or director's duties,
  • The act or omission was performed in good faith,
  • The act or omission was not willful, wanton, or grossly negligent, and
  • The association maintained and had in effect at the time the act or omission occurred, and at the time the claim was made, one or more policies of insurance which include coverage for (A) general liability of the association and (8) individual liability of officers and directors of the association for negligent acts or omissions in that capacity; provided, that both types of coverage are in the following minimum amounts:

    • At least $500,000 if the association consists of 100 or fewer separate interests;
    • At least $1,000,000 if the association consists of more than 100 separate interests.

This is not intended as legal advice. For legal advice, you should consult with a California licensed HOA attorney.

Coast Management of California