Director as Fiduciary

Fiduciary Duty results from a director’s responsibility for making decisions on behalf of others. This duty requires that the director act in the best interest of the association using ordinary care and good business judgment. If a director makes decisions with this level of care, he/she will generally not be personally liable if sued.

The New Mexico Non-Profit Corporation Act states that a director shall not be personally liable for any damages resulting from actions taken unless the director has breached or failed to perform the duties of his office and the breach or failure constitutes willful misconduct or recklessness. (Paraphrased from 53-7A-3.F) Unfortunately, this doesn’t stop people from suing directors, thus the need for Directors & Officers Insurance.

The director also owes a duty of undivided loyalty and honesty, which is why a prudent one avoids conflicts of interest as much as possible. Avoiding a conflict of interest altogether is impossible because the director is also a member of the association and is affected by budgetary and other decisions it makes. However, if a director relies on the recommendations of its manager and other experts, it goes a long way to avoiding the risk of being accused of acting in its own interest.

If prudence and rational decision making results in a threat of a lawsuit, you or your manager should contact your association attorney and directors and officers insurance carrier so they can assist you in managing a prudent reply.

Learn more about these and other topics at WestGate’s HOA/CONDO Seminar, which starts at 11:30 AM on Sunday, June 26th at Quail Run on 3101 Old Pecos Trail. Contact Tom Simon to be added to the mailing list: tom@westgatepm.com. Tom is a Certified Manager of Community Associations and Association Management Specialist and owner of WestGate Properties LLC.