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Law Educator, Esq.
Law Educator, Esq., Lawyer
Category: Real Estate Law
Satisfied Customers: 116716
Experience:  Licensed attorney practicing landlord-tenant, land use and other real estate law and litigation.
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Colorado statutes state that a nonprofit corporations corporate

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Colorado statutes state that a nonprofit corporation's corporate documents cannot eliminate or limit the personal liability of a director for the following: (a) monetary damages for any breach of the director's duty of loyalty to the nonprofit corporation or to its members; (b) acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (c) unlawful distributions of the corporate assets, including loaning corporate funds to a director or officer; or (d) any transaction from which the director directly or indirectly derived an improper personal benefit.

My question is about part c of the above, "or a knowing violation of law". Does this apply to regulatory statues as well are criminal statues? One example is the Colorado laws requires the annual budget be presented to the owners in a meeting where the owner would have the opportunity to veto the budget. Our board has decided to just present the budget at a board meeting instead of a membership meeting that would require notice be sent by mail and signs being posted announcing the meeting as required by Colorado statutes.

My understand is that a owner could take action to enforce the Colorado statutes by filing a lawsuit against the board asking the court to order the board to comply with the statute. I further understand that such a suit can be filed even if there is no direct momentary harm to the owner. I read some place that is the board is not following the state statutes or the association governing documents, the owner is presumed to be harmed even if the harm can not be quantified by a monetary amount. I also understand that said owner would be entitled to reimbursement of their legal expenses if the court sides with them.

My question is if the court sides with the homeowner demanding compliance to the regulatory statues, would that mean that the board members would be personally liable for not only the homeowners legal fees but also the legal fees the homeowners association spent responding to the law suit.

It appears to me that that the Directors and Officers insurance would not cover the board members in this case, because such a policy would be contrary to the state statute (the hoa can not pay for a policy that indemnifies the board members against damges resulting in acting in bad faith). Is that correct?
Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.

When the law states knowing violation of the law this includes regulatory laws and administrative codes since they all have the force of law. Thus, if the board knowingly violates the laws or administrative codes or regulations the members could be held personally liable. The board insurance policy for their liability could still cover them, they are not exempting them from liability they are insuring them for liability under their directors and officers policy, so it might still cover them but the policy would have to be read to know for sure.

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