BUSINESS JUDGMENT RULE

As provided for in Civil Code §1365.7(a), 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: 

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:

• 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.  

The Corporations Code provides similar protections. Even though officers and directors are fiduciaries, they 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, and
3. With such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. Corp. Code §7231(a)

Updated by ADAMS KESSLER 9/14/2008