Partner Corner: 7 Tips to Reduce Management-Liability Risk

By: Eric Johnson

From better policies and procedures to the business judgment rule, find out the best ways to reduce your risk.

Challenge: Associations operate in a litigious environment. How can associations lessen management-liability risks associated with their daily operations?

Solution: Below are seven steps associations can take to mitigate their exposure:

  1. Follow the business-judgment rule. The business-judgment rule protects directors and officers if they acted with a good-faith belief that their business decision was made in the best interest of the association.
  2. Remember and follow the duties of care, loyalty, and obedience. The duty of care requires that you are prudent in the execution of your obligations. The duty of loyalty requires that you act in the best interest of the association above your own personal interests. The duty of obedience requires that you adhere to the bylaws of the association and comply with applicable state and federal laws.
  3. Policies and procedures. The association should develop and implement policies relating to potential conflicts of interest, whistleblowers, as well as the management of employees (e.g., employee handbook). It's important that an association consistently follow its policies and procedures.
  4. Document. An association should consistently document its actions, especially those relating to employee-performance issues.
  5. Consult legal counsel. Many associations employ in-house legal counsel. It is in your best interest to consult counsel when navigating a difficult situation.
  6. Transfer of risk. Insurance should be part of an association's overall risk-management game plan.
  7. Utilize risk-management resources. Many insurance carriers offer tools to help their clients avoid claims. Take advantage of these risk-management tools.

Eric Johnson is assistant vice president of Aon Association Services, a division of Affinity Insurance Services, Inc., which provides the ASAE-Endorsed Directors & Officers Insurance program to associations. Email: [email protected]

Eric Johnson