In 1997, a racially mixed couple wanted to sublet a co-op apartment at the Beekman Hill House Apartments in New York City. Nicholas A. Biondi, then-president of the Beekman Association's board of directors, refused to approve the couple's application. The couple sued the association for illegal discrimination and the judge found Biondi liable and ordered him to pay the couple $230,000 in compensatory damages and $125,000 in punitive damages. The other board members were also ordered to pay $25,000 in punitive damages.
The association's directors and officers insurance policy—also known as D&O—covered the compensatory damages, but the punitive damages were not covered and had to be paid in full by the individual directors.
Every HOA board member has a personal responsibility to conduct association business in the best interests of the shareholders and unit owners that they represent. However, board members are human and therefore fallible, and there are occasions when they may make a wrong decision—or what a homeowner believes is a wrong decision.
Many claims stem from disputes over homeowner restrictions—like painting a front door, or putting a satellite dish on the roof, for example—or from a less-than-brilliant financial decision that winds up costing association members. Issues like these account for the vast majority of cases, but sometimes the problem at hand can be as serious as racial discrimination against a potential resident.
"Any decision that a board member makes can be subject to a claim if the homeowner disagrees with the decision," says Ronald Perl, a partner in charge of Hill Wallack's community association group in Princeton, New Jersey. "These disagreements blow up into lawsuits and claims for damages."