DON’T SWEAT THE THREATS – Part 2

DIRECTOR AND OFFICER IMMUNITY

Tim and Steve Sellers

 

This is the second in a four part series that explores the protections the law provides for those who serve their communities as association directors and officers in North and South Carolina.

In North Carolina, directors and officers are individually immune from civil liability for monetary damages, except to the extent such damages are covered by insurance, for any of their acts or omissions arising out of their service as a director or officer. Immunity means that the officers and directors cannot be held legally responsible for their actions or decisions. This immunity is provided by statute in N.C.G.S §55A-8-60. It is, however, subject to some important limitations. For example, immunity is not available if the person (i) is compensated for services beyond reimbursement for expenses, (ii) was not acting within the scope of his or her official duties, (iii) as not acting in good faith, (iv) committed gross negligence or willful or wanton misconduct that resulted in damage or injury or (v) derived an improper personal financial benefit from the transaction.

In addition to the immunity provided for in the N.C.G.S §55A-8-60, the association’s Articles of Incorporation may contain provisions specifically limiting or eliminating a director’s personal liability for monetary damages arising from his or her breach of any duty as a director. See N.C.G.S §55A-2-02(b)(4). Such a provision arguably provides protections even greater than N.C.G.S §55A-8-60 since it is not subject to as many limitations and exceptions. Still, it does not provide protection with respect to acts or omissions that the director at the time of the breach knew or believed were clearly in conflict with the best interest of the association or any transaction from which the director derived an improper personal financial benefit. If the association’s original Articles of Incorporation do not contain such a provision, one may be added by amendment but will only be effective with respect to acts or omissions occurring after the date the provision is added and becomes effective.

In South Carolina, immunity is provided by statute in S.C. Code §33-31-202(b). This provision states that an association director may not be held personally liable for monetary damages for breach of any duty to the association or its members. This immunity is provided automatically unless the Articles of Incorporation provide otherwise. This automatic immunity does not, however, eliminate or limit the liability of a director for acts or omissions (i) that are not made in good faith, (ii) which involve intentional misconduct or a knowing violation of the law, or (iii) which are made in connection with a transaction from which the director derived an improper personal benefit. In the South Carolina Reporters’ Comments which follow the statute, the reporter notes that even grossly negligent conduct is covered by the protections provided in Section 33-31-202(b).

Immunity is a shield that protects directors and officers from liability for their acts or omissions. Keep that shield in front of you by sticking to the proper business of the association, by always acting thoughtfully, in good faith and with the best interests of the association in mind, by avoiding conflicts of interest and by never accepting any personal benefit for doing your job.