BUSINESS JUDGMENT RULE

While the specific language of the Business Judgment Rule varies from State to State, we offer the following as a general example. The club’s own legal counsel is its best resource in determining the board’s actual exposure.

A volunteer officer or director is not personally liable in excess of the association's insurance (described below) for bodily injury, emotional distress, wrongful death, or property damage or loss as a result of the tortious act or omission of the officer or director if all of the following criteria are met: 

1.  The act or omission was performed within the scope of the officer's or director's duties. 

2.  The act or omission was performed in good faith.

3.  The act or omission was not willful, wanton, or grossly negligent.

4.  The association maintained insurance general liability of the association and individual liability of officers and directors for negligent acts or omissions; provided, that both types of coverage are in the following minimum amount:

a.  At least $500,000 if the association consists of 100 or fewer separate interests. 

b.  At least $1,000,000 if the association consists of more than 100 separate interests. Civ. 1365.7(a)

The Corporations Code provides similar protections. Officers and directors can make poor decisions that result in damage or loss, but still avoid personal liability if they performed their duties:

1.  In good faith

2.  In a manner which the director believes to be in the best interests of the corporation

3.  With such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. Corp. 7231(a)