Board Member Indemnification - Is it for You?

Occasionally, we receive questions about whether the Association should be responsible for indemnifying its board members and officers. The answer is resoundingly “yes”, but there are some qualifications. The Association’s governing documents may set out the circumstances when indemnification is available, so they should be reviewed very carefully. Section 302 of the Colorado Common Interest Ownership Act (“CCIOA”) provides that, subject to certain limitation, without specific authorization in the declaration, the association may provide for the indemnification of its officers and executive board and maintain directors’ and officers’ liability insurance.

However, this indemnification right is also subject to the provisions of the Colorado Revised Nonprofit Corporation Act (“Nonprofit Act”). Under the Nonprofit Act, blanket indemnifications of officers, directors (and other authorized people) are not permitted. Nor are indemnifications made in advance of an actual specific case where indemnification is requested. In other words, general blanket indemnifications of all actions of board members or officers are not allowed.

The rationale behind this is that a person is entitled to indemnification if the person’s conduct was in good faith, and the person reasonably believed that, in the case of conduct in an official capacity, that the conduct was in the Association’s best interests, and in other cases, that the conduct was at least not opposed to the Association’s best interests. It is impossible to make the necessary determination in advance that an officer’s or director’s conduct was in good faith or in the Association’s best interests. Each of these determinations must be made on a case by case basis.

So, as tempting as it is to put blanket indemnification provisions in place in advance, such provisions are not enforceable absent a finding in each specific case that the person is actually entitled to indemnification.