If you hold a professional license, for example as a lawyer, architect, engineer, or insurance broker, is it a good idea to serve on your condominium or homeowner association board of directors? We spoke with Joel Meskin, Esq., CCAL, of McGowan Program Administrators, to find out what professionals need to know before doing so.
According to Meskin, when he has asked a licensed professional why they would like to sit on the board, their response is often “I need to make sure that my investment in my unit is being protected. Therefore, if I’m on the board and I’m close to those and part of those decisions, I can make sure they’re doing that.”
However, Meskin noted that serving on the board as a licensed professional can pose risks if that professional is using their expertise to make decisions on behalf of the board.
He explained that oftentimes, the board will ask the licensed professional for their expert opinion on certain matters which can lead to problems down the road. “It’s like the camel getting its nose under the tent, and you can’t let that happen,” Meskin said. “It’ll start with ‘can you just take a look at this’ and that sort of grows into them taking on certain responsibilities.”
For example, as board president, a licensed professional may feel compelled to sign off on something based on their knowledge, even if the board can’t get together to review and discuss the matter. “A lot of times it’s out of convenience,” said Meskin.
However, he noted that in such situations, if the professional asked their firm if they are covered for making a legal decision on behalf of their homeowners’ association, the answer would be no.
In fact, Meskin said most employment contracts prohibit performing outside work in a professional capacity, even if it’s voluntary. “That’s legal work,” he noted. “You can sit on your synagogue, church, or homeowner association board, but you shouldn’t be doing anything professional. I think it creeps up on them.”
Meskin said it’s important for a licensed professional to only make decisions or vote based on what’s in front of the board as a whole. However, he explained that this presents a challenge as well since giving a response at all is based on one’s knowledge which would be tied to their experience as a licensed professional.
“I think what they need to say is ‘this is my opinion; it’s not my professional opinion, and I recommend for the purpose of what we’re doing here that we retain an independent expert or professional to review this issue,” noted Meskin.
Rather than serving on the board, a licensed professional may be interested in serving on a committee instead, such as a legal committee or architectural committee. In order to serve on one of these committees, associations have certain requirements based on the type of committee.
According to Meskin, this is also a risky situation. For example, a legal committee of just attorneys to advise the board could present a problem for the attorneys on the committee if a homeowner or the board decides to file a lawsuit claiming they gave incorrect advice. “They would be putting themselves at their own personal risk,” said Meskin, adding that they would most likely not be covered by the association’s Directors and Officers (D&O) insurance policy.
“A D&O policy is not a professional liability policy. It’s a management liability policy. You cannot turn it into a professional liability policy by having a committee of lawyers,” he said.
Meskin noted that it is common for architectural review committees to require either architects or engineers to serve on them; however, he offers the same advice with regard to their risk.
“Even if they make a disclaimer to the board and state that they are not giving professional advice and tell the board to consult with a professional, there’s still an assumption that the board is getting professional advice from them based on the fact that they had to have certain qualifications in order to serve on the committee,” said Meskin.
So, why would any attorney, architect, or engineer volunteer for one of these committees if it’s possible they may not be covered by the association or their own firm? “I’m not sure if they’ve thought it through,” said Meskin, adding that they may think they will be able to defend themselves or that they wouldn’t get sued.
He noted that professionals sitting as volunteer board members could still be covered by the indemnification provision in the governing documents as the indemnification provision in the governing documents and insurance coverage are independent issues to be looked at separately. A reality of a volunteer board member relying on the indemnification provision is it relies on the association’s financial ability to fund such defense and/or indemnity. Moreover, he said that many, if not most associations don’t budget for litigation or to defend other board members. Some, said Meskin, will only reimburse the board member for his or her defense and/or indemnity. As a result, the board member will in many cases be required to come out-of-pocket to front defense fees and costs when the professional is being sued.
Another issue for volunteer “committee members” to consider, whether a professional or not, is whether the “indemnification” express provision in the governing documents extends beyond directors and officers to committee members. This is another reason that committee members should be concerned with the nature and extent of coverage in the directors and officers liability policy. This is an issue that community association insurance professionals and attorneys may want to review with board members.
Meskin said it’s important to look at everything before making the decision to serve including the insurance policies, as some may have an endorsement that removes the professional liability exclusion.
Another option is for committees to purchase their own insurance, said Meskin. “I’ve had architectural review committees come to me for their own insurance because they want to make sure they have proper coverage,” he noted. “In that situation, I’m not looking for management liability coverage; I’m looking for professional liability coverage, and it may be a legal malpractice policy or an architect and engineer professional liability policy.”
Meskin added that the cost for such insurance is similar to the cost for a regular architectural or engineering firm to obtain insurance.