Condo Media - May 2013 - 54

GOVERNANCE
safety net. It may seem perfectly reasonable to other board members to let
another member of the board handle
the investment of the association’s
reserves, Meskin says, because “Bob’s
a great investor” and can get a great
return. But if the investments go south,
Bob isn’t going to have any coverage,
because investment management isn’t
part of his job as a trustee. And the
other board members may be out in
the liability cold, as well, Meskin points
out, because their job is to protect the
association’s capital, not to maximize
the investment return.
Trustees who operate as “lone rangers” also incur potential liability risks,
even if they are acting (or think they
are) in the association’s best interests.
A trustee who takes it on himself or
herself to negotiate a contract with one
vendor when the board has selected
another would meet that description,
Meskin says. The trustee may have
been convinced that this vendor was

Condo Media • May 2013

the best choice, but trustees are supposed to operate as members of the
board; they aren’t authorized to act
individually. And if the vendor does
something that damages the common
areas or harms other owners, Meskin
notes, the trustee would not have the
benefit of the association’s indemnification or of the D&O coverage.
Meskin once dealt with a trustee who
was convinced that a Facebook page
was a great mechanism for facilitating
communication and building community in her association. Meskin
argued that the potential liability risks
for the association offset those benefits and a majority of the other board
members agreed with him, as did the
association’s manager and its attorney.
Undeterred, and convinced that she
was doing what was best for the community, the trustee started a Facebook
page, which, under Facebook’s rules,
only she had the authority to remove.
Meskin says he informed her that

in the event of a law suit targeting the
page, “she would be on her own” for
funding defense costs and paying any
damage award. He also told her that
the association was likely to file suit
against her, and under the “insured vs.
insured” exclusion in the D&O policy,
she wouldn’t have coverage for that
litigation either. Her response: “When
do you want me to take it down?”

Unsettling Decisions

While suits naming trustees individually
aren’t uncommon, liability judgments
against them are rare, Meskin says, at
least in part because “very few cases
ever go to trial.” But some of them do.
In O’Brien v. Christensen, the Massachusetts Supreme Judicial Court held
that board members could be personally liable for the negligence of the contractor they had hired to repair porch
railings, upending the assumption that
boards and board members were not
responsible for the acts or omissions of
third parties. That 15-year-old decision
provides a useful reminder, if trustees
need one, of just how valuable indemnification and D&O insurance are.
In a more recent case, Wynnﬁelds
Condominium Trust v. Classic Builders, a Massachusetts Superior Court
rejected the argument of a developer,
who said the association’s D&O
insurance should cover his defense of
a construction defect suit the ownercontrolled association board had filed
against him for failing to address the
defects while he controlled and served
on the board. The court noted that all
association trustees, including a developer serving as a trustee, owe a duty
of loyalty to unit owners, and there
was a legitimate question, the court
said, as to whether this developer had
put his own interests ahead of the association’s.
Although this case involved a developer, the court’s emphasis on fiduciary
duty should resonate forcefully with all
trustees. Their failure to act in the association’s best interests — if found to
be knowing and willful — could leave
them, like this developer, without the

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Condo Media - May 2013

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