Section 7.1 — Due Care and Loyalty
Directors and Officers shall perform their duties (i) in good faith, (ii) in a manner the person reasonably believes to be in the best interest of the Association, (iii) with the care an ordinarily prudent person in a like position would use under similar circumstances, and (iv) with the degree of care and loyalty required of a Director or officer of a corporation organized under RCW 24.03A (or RCW 24.06 instead, if and only if the Association is fully bound by RCW 64.90). A person performing such duties may rely on information, opinions, reports, or statements, including financial statements or other financial data, prepared or presented by a source the person reasonably believes to be reliable and competent in the matters presented, unless and until the person has reasonable cause to believe that such reliance is no longer warranted. A Board may also exercise its judgment when deciding if, and how, to enforce the governing documents.
Committee Notes
Four duties: good faith, best interest of the association, prudent person standard, and statutory care and loyalty. The reliance standard — directors may rely on professional advisors and reports unless they have reason to doubt them — is important in practice. The enforcement discretion clause ("if, and how, to enforce") gives boards flexibility while preserving accountability for willful non-enforcement. This section is under active review.
Section 7.2 — Code of Conduct
A person who serves as a Director is hereby deemed to have made the following six commitments:
- I Will Respect My Neighbors: I will set a good example by treating neighbors as my equals, by listening attentively to what they say, and by not embarrassing them in what I say or do.
- I Will Keep My Governing Documents Promises: I will comply with use restrictions, pay my assessment obligations, and faithfully fulfill the obligations of homeownership set out in our governing documents.
- I Will Respect My Fellow Directors: I will listen to, and consider, the viewpoints of others. I will cast my vote on issues in a way I believe best serves the long-term best interests of our community. I will respect decisions I have voted against. I will not say or do things to undermine a Board decision.
- I Will Respect Legal Boundaries: I will not disclose confidential information to someone who does not have a right to receive it. I will not use my position to advance my own self-interest, nor to obtain a benefit not afforded to those who are not on the Board.
- I Will Be Prepared: I will prepare for Board meetings. I will read materials furnished to me to inform me on matters to be discussed at an upcoming meeting. I will listen attentively to viewpoints expressed at a meeting and give due consideration to material facts in the course of deciding how to cast my vote on a matter.
- I Will Be Honest: I will disclose to the Board the relevant, non-confidential, factual information I have that bears on whether I might have a conflict of interest on a particular matter that has come before the Board. I will abstain from taking part in Board decision making where I have a personal stake in the matter the Board is considering.
Committee Notes
A code of conduct embedded in the bylaws creates an enforceable standard, not just an aspirational one. However, the standard lacks definition that would make it enforceable and uses emotional language. This section is under active review.
Section 7.3 — No Personal Liability
So long as a Director, or Officer, or Managing Agent has acted in good faith, without willful or intentional misconduct, upon the basis of such information as is then possessed by such person, no such person shall be personally liable to any Owner, or to any other person, including the Association, for any damage, loss, or prejudice suffered or claimed on account of any act, omission, error, or negligence of such Person; provided, that this exemption from personal liability shall not apply where the consequences of such act, omission, error, or negligence is covered by insurance obtained by the Board and the insurer(s) have confirmed coverage in writing.
Committee Notes
Volunteer director liability protection is necessary to attract and retain board members. The protection is conditioned on good faith and absence of willful misconduct — it does not shield intentional wrongdoing. The insurance carve-out is important: where insurance covers the harm, the personal liability shield does not apply (the insurer covers instead). This section is under active review.
Section 7.4 — Indemnification
Each Director, officer and committee member shall be indemnified by the Association against all expenses and liabilities, including attorney's fees, reasonably incurred by or imposed in connection with any proceeding to which such person may be a party, or in which such person may become involved, by reason of holding or having held such position, or any settlement of such a proceeding. Any indemnification provided under this Section shall, unless limited by the terms of the undertaking to indemnify, continue as to a person who has ceased to be a Director, officer or committee member, and shall inure to the benefit of their heirs, executors, and administrators.
However, this indemnification shall not apply to any action by or on behalf of the Association against a Director, officer or committee member in which such person has been adjudged guilty of any breach of duty toward the Association. By means of a resolution or contract specifically approved by the Board, the Association may indemnify an employee or agent to such degree as the Board determines to be reasonable, appropriate, and consistent with applicable law and to be in the best interests of the Association.
Committee Notes
Indemnification covers legal costs for directors acting in their official capacity. The key exception: no indemnification where the director has been found guilty of a breach of duty to the association. Post-service indemnification (continuing to heirs) protects directors from proceedings that arise after they leave the board. The employee/agent indemnification is discretionary, requiring a specific board resolution. This section is under active review.
Section 7.5 — Insurance
The Association may purchase and maintain insurance on behalf of any person who is a Director, officer, committee member, employee, or agent of the Association or is serving at the request or consent of the Association as an officer, employee, or agent of another corporation, partnership, joint venture, trust, other enterprise, or employee benefit plan against any liability incurred by such person because of such person's status, whether or not the Association would have the power to indemnify such person against such liability under the provisions of this article.
Committee Notes
D&O (Directors and Officers) insurance is authorized but not mandated. The association "may" purchase it. The committee recommends confirming that the association maintains D&O coverage and that coverage amounts are reviewed periodically. "Whether or not the Association would have the power to indemnify" — insurance may cover scenarios where indemnification would not, closing coverage gaps. This section is under active review.