BYLAW DRAFT REVIEW
MARCH 21, 2009 INFORMATION MEETING
1. Laws - RCW’s
Comment: It is my understanding that RCW’s are things that Associations can do, but it is not necessarily locked in law...we do not have to do them.
Comment: You have not identified which is which in here and I know that some of the RCW’s refer to general powers each corporation shall have the power to do, but it is not necessarily a requirement.
Response:
Within the law, there may be specific requirements that must be met or the law may establish parameters under which to operate or allow some discretion. It depends on the specific section of law as written. What is included in the bylaws must be followed unless the law is revised and conflicts with the bylaws. Ultimately, the law takes precedence over the bylaws.
In the working draft, we placed the pertinent or related RCW’s in the right hand column of the document for your reference. The purpose of this was so that you would know the proposed bylaws were not written in a vacuum, and if you had a concern or you think something should done differently you have a resource to go check it out for yourself.
2. Format
Comment: It is hard to compare the current bylaws with the revised draft of the bylaws. It was difficult to go through and see what changed and why it changed. Why did members not receive a copy that included strikeouts and inserts where appropriate?
Comment: What does new language for clarification mean?
Response: The revised draft of the bylaws hopefully is written in a more clear and readable manner which resulted in a different format. The current bylaws are difficult to read and understand and the format is outdated. The new format follows the legal standard used today and is similar to other homeowner association bylaws. One of the difficulties with our current bylaws is how they are laid out. For instance, references to member’s rights are spread throughout the current bylaws in different articles and sections. In the new format, member rights are consolidated into one article.
Because some sections of the current bylaws are consolidated into one article and some articles were broken up into separate articles, it would be difficult to do a strikeout and underlined document. We believe the result would be a large document that many probably would not read or find useful because of its length. Essentially, we are repealing our current bylaws and replacing them with all new language. This is not an uncommon practice in rulemaking, or even in the legislature when writing statutes.
We tried not to deviate from how the Association is currently functioning and structured. With a few exceptions, we do not believe you will see many major changes from how the Association is currently operating.
More detail has been incorporated in the proposed bylaws so that any Board member and member, now and in the future, would have the basic information needed or necessary to understand how the Association should function and conduct business. For instance, board member qualifications are stated differently in the proposed bylaws but essentially are not different from how the Association currently operates. Other changes were necessary to comply with the law. For instance, notice of member meetings must be mailed a minimum of fourteen days instead of the five days listed in our current bylaws.
The Board tried to come up with the most cost-effective way that got all the information to everybody so that each member could look at the draft. The Board decided to: (1) Mail to all members the working draft of the revised bylaws along with the notice; (2) To place on the website the Committee’s Report identifying changes made and the reasons why, the revised bylaws along with links to the current bylaws, state laws and articles of incorporation so that anyone could reference back and forth to the proposed language. Those not having access to the website were asked to contact the Secretary for copies.
The Board had asked that you read the draft as if you do not know Treasure Island and were buying property here. Would you accept these bylaws? Are they clear and readable? Is there anything in particular that is of concern or not in compliance with the law?
3. Review of the Bylaw Draft
Article 1.B. Nature and Purpose of Association
Comment: Insert addition [to protect the collective interest of members] to the purpose of the Association.
Response: The purpose of the Association is defined in the Articles of Incorporation. The Bylaws need to be written in accordance with the Articles and should state the same purpose. The Board believed the proposed change is outside the scope of the Articles and the “collective interest of members” is vague and open to interpretation. As drafted, Article 6.K., Standard of Care, states that the Board shall operate “in a manner they believe to be in the best interest of the Association.”
Article 1.C. Jurisdiction
Comment: Insert: “The authority [and responsibility] of this Association extends to the lands within the exterior boundaries of TICC, legally described as the Plat of Treasure Island...”
Response: The jurisdiction over which the Association has authority encompasses the entire Plat of Treasure Island. This includes all privately owned properties as well as Club owned properties. Private properties lie within the Association’s jurisdiction, but the Association does not hold “responsibility” for the private properties.
Article 1.D. Property Owned by the Association
Comment: “The Association is responsible for paying taxes and assessments on the properties owned by the Association...” Does that mean the Club has to pay assessments made by TICC on Club owned property? Revise to make it clear the taxes and assessments that the Association is responsible for are those required by the laws of Mason County.
Response: Specifying Mason County limits the definition, excluding other possible enforcement agencies. The language was revised to specify responsibility for “....federal, state or county taxes and assessments on the properties owned by the Association”.
Comment: Easements for the center road should be incorporated in the bylaws at this time, not as an island common area, but as legal rights of the island.
Response: Easements granted by private property owners for the center road are legal and binding as evidenced by Mason County records and are further documented on the relevant private property deeds. Identifying easements in the bylaws would not establish any further ‘legal rights.’
Comment: Why are Tracts A & F not included on the list of Property Owned?
Response: Tract A does not belong to the Club; it was divided in half by the developers and sold as residential tracts. There is no Tract F.
Article 1.E. Authorities
Comment: Board meeting minutes should be included in the list of governing documents that the Association is subject to.
Response: Minutes provide an indispensable record of the deliberations and actions taken at board meetings and annual membership meetings. Actions should be based on and supported by governing documents. Some actions could be questioned and challenged according to governing documents. Minutes are not included in the list of governing documents.
Comment: Why is the last item needed “Other applicable Association governing documents”? It seems redundant.
Response: Revised to delete the last item.
Article 1.F. Definitions
Comment: Insert: “For purposes of these bylaws the following definitions apply [and are limited to the bylaws] unless otherwise stated.”
Response: Policies and procedures are written under the authority of and based on the bylaws. The definitions would also be applicable to the policies and procedures, so they would not be limited to the bylaws.
Comment: Why is the definition of ‘Family Member’ so limiting? How would you classify an adult sibling who is visiting a TICC property owner? I have an adult daughter and I would consider her a family member, not a guest. Family members shouldn’t be limited to members’ dependents that live with them. I think it should be broader to incorporate any person’s family member who does not live with them.
Response: Revised to delete this definition in its entirety. The distinction is not specified in the current bylaws. ‘Members’ are defined and where ‘guest’ or ‘family member’ is used in the bylaws, the meaning of the words does not require definition.
Comment: ‘Initiative’ means a proposal to amend the bylaws, but it seems this statement limits it only to the bylaws. I am wondering if it should not include the Board of Trustees as well as the members. The Board should have the right to initiate.
Response: The Board does have the right to initiate a change to the bylaws. The Board would approve of a proposal to amend the bylaws and would then put a Referendum before the membership for a vote. When 20% of the membership signs a petition to amend the bylaws and submits it to the Board, this initiates an action compelling the Board to take that amendment to the membership for a vote with or without the Board’s approval.
The definition was revised to clarify the purpose of an initiative.
Comment: Members should be able to petition the Board for any subject, not just for an amendment to the bylaws.
Response: The common interpretation of ‘petition’ is a document that must be signed by a specified number of people. A ‘petition’ is defined in the dictionary as an appeal or formal request. Unless there is a legal requirement for a number of signatures, one person can submit a petition. A specified number of signatures (20% of the membership) is required to compel a vote for a bylaw amendment.
However, there is no requirement for a number of signatures to petition the Board for any other subject. Members can petition the Board on any subject.
Article 2.C. was previously titled Member Petition Rights. To avoid confusion caused by using the word ‘petition’ in reference to the members’ right to make a formal request regarding any subject, this Article was revised to eliminate use of the word petition therein and the title was changed to Member Complaints.
Comment: Insert: “Members in good standing means a member paid in full as to their obligation to pay any assessments owed to the Association, or a member who complies with any repayment agreement reached between the Association and the member” [as stipulated under Articles 4.A.6, B., C., and D.]
Response: Definitions should apply to all sections now or in the future unless otherwise defined. Citing sections limits the definition to those sections listed and affects the purpose of having definitions. Also, if any amendments are made in the future, there is a risk of forgetting to amend all sections (as has happened in the past).
Comment: What is a resolution? The definition is not as clear as I think it could be.
Response: It is when the Board takes an action to approve of a policy, adopt a rule or regulation, etc.; making a decision by motion is a resolution. The definition is close to a definition provided in a legal dictionary.
Article 2.A. Members
Comment: Insert: “Each member shall automatically become a member [in and owner] of the Association....”
Response: The Association is a legal entity created under the law (RCW 24.03) for the mutual purposes outlined in the Articles of Incorporation. A person who purchases property on the island owns their lot(s) and becomes a member of the Association, a non-profit corporation.
Comment: Regarding damages to Club property, who is responsible when a company or public utility is operating or doing service work and does damage to TICC property? Do the bylaws need to address who is responsible for collecting damages or would it be the responsibility of a Commissioner?
Response: Companies and service providers that serve the general public are responsible for their actions. The Board, on behalf of the Association, may initiate action to collect damages to Club property and that action would require Board approval.
Comment: A Section regarding Disclosure should be included. This would require a process to protect the seller, Club members, and Board when an Island property is sold. Some Homeowner’s Associations have a form for the buyer to sign that the buyer has received a copy of the Bylaws and financial information concerning assessments and reserves. A lot of condominiums are doing this now because of suits that have occurred.
Response: Disclosure laws have been passed for condominiums, but not for Homeowner’s Associations (HOA’s). Legislation regarding the responsibility for HOA disclosure did not pass the legislature. There may be some requirements under the real estate laws; however, that would probably relate to the seller-buyer of property. Real estate companies and buyers do contact the Association for information regarding bylaws and assessments. However, adding this requirement to the bylaws may unnecessarily make the Association liable for something not required by current law. If it becomes law at some point in the future, TICC would have to comply with it, and, at that time, we could choose to amend our bylaws to incorporate it.
Article 2.B. Member Voting Rights
Comment: The total voting power is not defined with a specific number. Why didn’t you specify the 251 member owner lots? What were you concerned about? When we decided on quorums and things then we need a specific number to focus on.
Response: The number of member owned lots could change. If the Club were to purchase any more lots, the number of member owned lots entitled to vote would decrease. Members who are not in good standing as defined in the bylaws would not be able to vote, decreasing the total voting power. The total voting power is determined in accordance with the Membership Roster and number of members in good standing prior to every membership meeting, establishing the quorum needed.
Comment: Suggestion to add the simplest and most applicable case (an owner with one lot) to the list of examples showing how the number of lots owned by individuals determines the number of votes they have.
Response: This is specified in the language preceding the list: “...each lot shall be equal to one vote for each member owned lot.”
Article 2.C. Member Petition Rights
Comment: This section is limited to negative purposes. What about revisiting prior actions or suggesting new ideas?
Response: The purpose of this section was to clearly provide that when a member believes that the Association has acted in any way contrary to the best interests of the Association, or to the governing documents, they can request reconsideration by the Board. With consideration for earlier discussion (Article 1.F. Definitions) regarding initiatives, this section was revised to eliminate confusion caused by the use of the word ‘petition.’ The section title was changed to “Member Complaints”, the word ‘petition’ was deleted throughout and language was revised to clarify how to present issues for the Board’s attention.
Article 3.A. Annual Member Meeting
Comment: Suggestion to allow more flexibility than the one day specified for the annual meeting (second Saturday in July).
Response: This weekend was targeted for the participation anticipated – more members are on the island and likely to attend the meeting. The Board should not have too much leeway to change that around to suit their own interests to a time that the island is not highly populated. A set date ensures that a definite meeting is scheduled so members have a consistent date for which to plan for each year and the Club’s history does not indicate that having a set date is a problem. In the case of emergency or extenuating circumstances, the date of the meeting can be changed without legal repercussions.
Comment: Insert: [Meeting minutes shall be recorded and made available to all members.]
Response: This suggested insertion was made for every section that addresses meetings; the annual meeting, special meetings, informational meetings, and board meetings. A repeated reference to the same requirement becomes redundant. To keep the document clear and concise, the matter is addressed under Article 8.E., Secretary Responsibilities, and Article 8.H., Records. The Secretary is not required to record minutes of informational meetings. The purpose of these meetings is to take steps to inform the membership about issues, and listen to members’ responses. No actions can be taken by the Board or the membership at an informational meeting, therefore minutes are not appropriate. A report on the discussion and how the Board considers the member input would be something the Board may consider and utilize. (Similar to what the Board has done within this document.)
Article 3.F. Agenda
Comment: The agenda for membership meetings should provide an opportunity for members to introduce topics for discussion. Suggested insert: “...neither the agenda nor any items on it may be amended during the course of the meeting [except for New Business items].”
Response: The Trustees create the membership meeting agenda which includes both Old Business and New Business items. New “Business” items cannot be added to the agenda at the meeting. Notice of agenda items is provided to all members and no ‘Business’ should be addressed that was not included in the meeting notice. An open floor is always provided on the agenda for members to raise topics for discussion, make recommendations, etc. To ensure that providing this opportunity continues, the draft was revised to include that the agenda “...shall include opportunity for open member discussion.”
Article 3.G. Quorum
Comment: “A quorum for the transaction of business at any member meeting shall be at least twenty-five percent of the total number of votes of eligible members voting in person or by proxy.” The current bylaws say that a quorum is twenty-five percent of the entire membership. This is a big change - that a quorum is twenty-five percent of the members who attend the meeting.
Response: The current bylaws state, “At all meetings of the members of this corporation the holders of 25% or more of the membership certificates of this corporation shall constitute a quorum…” Member certificates are no longer applicable. However, the certificates essentially represent the total votes allocated to the Association’s eligible members. However, the language was revised for clarification and to correct an oversight in the second sentence relating to “total members” which was not consistent with total votes as a member may have more than one vote.
Article 3.H. Vote
Comment: Referring to when a simple majority is required to pass a vote instead of stating “Except when otherwise provided in these bylaws,” why not identify what the exceptions are? Or identify the Articles and Sections where the exceptions are specified.
Response: Revised to “Except as otherwise provided under Article 4.A.5 and Article 10...”
Comment: Include who will conduct vote tabulation - suggest at least two tellers and one board member.
Response: The procedure for tabulating the vote should be a separate document. Putting procedures in the bylaws is limiting. If something’s not working quite right and could be improved, the improvement could not be adopted without a vote of the membership. A documented procedure approved by the Board can be amended by the Board. This allows more flexibility to implement improvements and comply with changes in the law.
Article 3.I. Proxy
Comment: Unless there is a legal reason not to, a family member, even if not a TICC member, should be eligible to be designated as a proxy.
Response: The law is very specific in that only members of the Association can vote. Members are the owners of property on the island as named on the Title recorded with Mason County.
Discussion Summary: The bylaw draft included a change in how proxies are currently used. We now use general proxies which are written in such a way that it gives the proxy holder the right to vote as he or she sees fit on any business that may come up at a meeting. A member can tell their proxy holder how they want their ballot cast (verbally or in writing), but it’s not apparent that this option is practiced very often.
The bylaw draft provided for the use of limited proxies. A limited proxy includes on the proxy the business that is to be voted on and a place for the member to tell the proxy holder the way to vote on the business items stated in the Notice of the membership meeting. The proxy holder still receives the member’s ballot and casts it as instructed by the proxy.
The proposed use of limited proxies generated a lot of discussion at the March Informational Meeting and it was clear that the members present had concerns regarding this change. Points made included:
Response: It was obvious from the discussion and level of concern on this particular topic that this is an area that needs to be revisited. The provision for the use of limited proxies was removed from the drafted bylaws. The language in the final draft is the same as that used in the current bylaws. Following further study with membership input, this provision can be amended at a later date if needed.
It’s in the Association’s best interest to ascertain that whatever method of voting is used, it needs to be controlled and handled in such a way that the membership’s vote is not open to challenge. The service of an experienced and certified parliamentarian for guidance in this area has been discussed and may be pursued.
Article 4.A. Regular and Special Assessments
Comment: With regard to Special assessments and the statement that they “may be paid in installments over a period of time,” I have concerns with the Club becoming a bank. This sounds like members will have the option to pay any special assessment with payments if they want to.
Response: It was intended to refer to a large assessment broken down so members would pay a certain amount each year for a set number of years. When assessments are voted on the payment program would be specified in that vote. Revised to strike the reference to installments over a period of time to eliminate the possible misconception.
Article 4.B.2. Member Obligation
Comment: Regarding a member’s obligation “to pay reasonable late fees, as well as interest in an amount approved by the Board of Trustees,” why not state the interest rate that will be charged? The current bylaws say 18% so why isn’t that in there?
Response: The current bylaws do not specify the interest rate. Interest rate limits may be established by the Board according to law and to include them in the bylaws limits flexibility for the Board. Over time, they will also be inaccurate if there are any changes in law as to caps on interest rates, and will require a change not dependent on a vote of the membership.
Article 4.D.2. Foreclosure
Comment: Suggested change to “The amount past due on the date of the vote [to foreclose] must exceed three times the amount of the regular assessment...” – make it two years.
Response: The language referring to “three times the amount of the regular assessment” does not have to do with a length of time, but with the amount past due. If a member is two years past due, interest charges would have been added to the member’s account. As soon as the assessment for the third year became past due (31 days from the billing date), the member’s past due amount would exceed three times the regular assessment, yet only 25 months would have passed – not a full three years.
During review, it was noted that a six-month provision in the current bylaws was unintentionally omitted from the draft: The draft was revised to retain that provision: “The assessment(s) past due on the date of the vote must be at least six months past due and must exceed three times the amount of the regular assessment.” In the case of a special assessment for a specific project, if the amount of the assessment exceeded three times that of the regular assessment, foreclosure could be initiated as soon as it became six months past due.
The current bylaws give the Association very broad powers with regard to foreclosure. No past due amount is specified, so it could be any amount no matter how menial; the only provision is that a member be six months past due. Current bylaws also allow for non-judicial foreclosure (without going to court). This entire section was rewritten to provide reasonable protection against foreclosure for the homeowners. The provisions included will ensure that the Association would only initiate foreclosure proceedings as a last step in a well-defined collection procedure, and only after less disruptive measures have failed to resolve a serious delinquency issue within a specified period of time.
Article 4.D.3. & 4 . Foreclosure
Comment: There is too much procedure in this section. I don’t think the members are going to want to get involved in all the details of a foreclosure. After “If resolution is not reached (D.2.), insert ‘The Board shall engage a foreclosure attorney and proceed.’ Take all the procedural details out.
Response: Revised to state: “If resolution is not reached, the Board shall engage a foreclosure attorney and initiate foreclosure proceedings.” The additional procedural details were omitted as suggested. The details are part of the law and do not really need to be in the bylaws. Omitting all the details will also allow more flexibility with regard to law changes. The Board will be following an attorney’s advice and proceeding in accordance with state law.
Article 5.A. Reserve Funds
Comment: With regard to “all decisions regarding the expenditure of any amount of the ARF will be made by the members of the Association,” the Board may want to take some leeway there. The current bylaws allow the Board to make expenditures from that fund.
Response: The current bylaws conflict with laws enacted since they were adopted – the membership must approve of the Club’s budget every year. The budget includes all expenses, including any that would require a withdrawal from the Asset Replacement Fund. A provision for emergencies is included in this Article.
Comment: The amount of the regular assessment intended for the Asset Replacement Fund should be reviewed every year instead of “at least once every five years.” If nothing has changed, the Board could just say nothing has changed.
Response: As written, the review includes specific requirements intended for an in-depth review of long-term objectives, not just annual operating expenses. Long-term plans should not need an intense review every year. If the Board did not meet all requirements or elements listed for the review each year (by stating nothing has changed), this would be a violation of the bylaws.
Comment: “Any expenditure made from the ARF shall not exceed ten percent over the amount approved by the membership...” What happens if the expenditure has an overrun and exceeds ten percent?
Response: The purpose of this provision was to allow for fluctuation of costs during the time it takes to plan, get bids and a vote. If the cost increases over ten percent between the time a bid is received, voted on, and a contract is written, then it would go back to the membership at a Special meeting or the next annual meeting. If an expenditure has an “overrun” that is a contractual issue, it is the Board’s responsibility to address that issue under its duties and responsibilities.
Article 6.A. Board of Trustees - General Powers and Duties
Comment: Insert: The Trustees “responsibilities include following state laws and the Association’s governing documents in ways that are fair and reasonable, [fiscally responsible,] and best serve the purposes of the Association.”
Response: What is meant by fiscally responsible? Not overspending? The law requires the Board to observe the budget approved by the membership and this requirement is included in the bylaw draft. The members approve of the budget, so in effect they are also responsible for the fiscal affairs of the Association.
Additionally the following language is included in this section: “Members of the Board of Trustees shall act in good faith, and develop skills and insight into the work of the Association through their service to the Association”; good faith is defined under the definitions; and, “Standard of Care” is covered under 6.K. The language included closely follows the law and relates to all business conducted by the Board.
Article 6.B. Committee(s)
Comment: I would caution you about going too far in regulating committees.
Response: The law requires that the creation, makeup, authority, and operating procedures of any committee must be addressed in the bylaws. This section was written with the attorney’s guidance and the understanding that committees are created by and act on behalf of the Board and the Board is ultimately responsible for the committee’s actions.
Comment: I think the Board needs certain committees: Finance and Insurance Committee, Emergency Planning Committee, and Strategic Planning Committee.
Response: Good suggestion, but it would be a significant change from how the Association currently operates or functions, and each committee’s creation, makeup, authority and operating procedures would need to be specified in the bylaws. As written, the bylaws are similar to how the Association currently operates and there is enough flexibility to allow the Board to create any type of committee the Board believes is necessary to assist them in their duties.
Article 6.C. Employee(s)
Comment: Insert: “The Board of Trustees may appoint, engage and/or employ, and fix all salaries and wages of employees” [including all lawful fees, taxes, assessments required by law...]
Response: The Board of Trustees is required to comply with the law. Since the Board is authorized to hire employees, then it is a given that the Board must follow all the related regulations and laws. This addition language is not necessary.
6.F. Procedures
Comment: I would like to request that any of the procedures mentioned in the bylaws be included with the bylaws. I would not be able to approve the bylaws without knowing what the procedures are.
Response: In most cases, there are no written procedures available. Over the years, the Board has adopted policies and procedures, but they are recorded only in the meeting minutes. Some have been established by practice, carried on by word-of-mouth, and are not documented anywhere. The Board’s operating procedures are not compiled in any one place that the Trustees can use for reference and guidance, nor are they available to provide as written documents with this draft.
Procedures relate to the operations of the Board in conducting its day-to-day business. The Board determines what procedures are needed, adopt them accordingly, and can amend them to implement improvements, comply with changes in the law, etc. Even if written procedures were available and presented with the bylaws, they could be revised or repealed by the Board. Procedures must support the objectives stated in the bylaws; however, there is no guarantee that the procedures will stay the same from year to year.
Policies and procedures are necessary to ensure that the Board conducts its business and treats its members in a consistent and fair manner. Documenting them will help the Board function more effectively and provide guidance for new Trustees, resulting in consistent governance over the years. Therefore, the Board has been working to:
The Board’s ability to adopt and document policies and procedures is not dependent on specifically mentioning them in the bylaws. The language under Article 6.F. is included to ensure that Board members and members (now and in the future) are aware of the need to establish written procedures. This is also in line with attorney advice. Article 6.F. states: “Procedures. The Board of Trustees shall establish written procedures to assure that the Board will function effectively, and in a manner consistent with the law, its governing documents, and the needs of all members of the Association.” Including this section will make written procedures a requirement as opposed to an elective that may never get done.
Because of the importance of certain areas, such as those areas affecting member rights, ensuring members are treated fairly and uniformly, and conducting financial affairs of the Association, establishing procedures was made a requirement in those areas. These areas could involve legal action of some kind, and if laws, rules, and policies or procedures are not followed, could have legal ramifications to the Association.
Article 6.H. Fees and Fines
Comment: “The Board of Trustees may levy and impose fines for violation(s) of the Association’s governing documents in accordance with a schedule of fines approved by the membership.” Does the “schedule of fines” need to be approved by a 2/3’s vote or can it be approved by a majority?
Response: The law allows the Board to impose fines. The current bylaws do not address fines. As proposed, the bylaws require the membership’s approval of the schedule of fines. Approval is by a simple majority, which is covered under Article 3.H.
Article 6.I. Rules and Regulations
Comment: Insert: “The Board of Trustees may also propose rules governing the use of members’ privately owned lots when supported by the existing plat restrictions of TICC” [and the code of Mason County].
Response: Plat Restrictions do not necessarily have to follow Mason County Codes. Our plat restrictions reference Mason County Building Regulations. Some Plat Restrictions or CCRs may impose restrictions that exceed those enforced by the county. For example, TICC Plat Restrictions state that no property line shall be closer than six feet to a building. This exceeds the County’s five-foot requirement.
Article 6.L. Indemnification
Comment: Why does this need to be in the bylaws? What’s the purpose? The Club has Directors and Officers (D&O) insurance.
Response: Directors and officers often will want a nonprofit corporation to provide D&O insurance coverage even if the corporation has indemnification provisions in its articles of incorporation or bylaws. The type of coverage, co-insurance levels, exclusions and other aspects of D&O insurance may vary significantly from policy to policy. Indemnification is an added protection against the risk that individuals are exposed to when serving on a Board. The indemnification provision is discretionary and follows the law. “The Association may indemnify” its directors and officers whether or not they successfully defend against a suit, so long as the director or officer acted in good faith and had no reasonable cause to believe the conduct was illegal. Any action taken under this provision will most probably be in consultation with an attorney should the Association be involved in any litigation.
Comment: A requirement for fidelity insurance is included in the draft. I suggest including a section that requires the Club to have liability insurance, property damage insurance, and Directors and Officers insurance.
Response: If a requirement for liability and property damage insurance was included in the bylaws and the Club was unable to procure insurance (as with the current situation with the bridge). This would add a liability to the Association for something that may be beyond its control. The membership may choose to have different insurance coverage for different assets. For instance, the Club has never had property damage insurance for any asset other than the bridge. This broad requirement would limit the membership’s ability to make decisions based on need, cost, and level of risk they’re willing to assume.
Comment: A provision pertaining to conflict of interest should be included.
Response: A Section was added to the draft to address this concern (See Article 6.M. Conflict of Interest).
Article 7.A. Number and Qualification (Board of Trustees)
Comment: Is seven board members enough? Nine sounds like a better number.
Response: Getting volunteers to maintain a board of seven has been difficult. Maintaining a board of nine would be even more difficult.
Comment: Was there any thought given to having a smaller board, five or even three?
Response: The Articles of Incorporation require a minimum of five, so it’s possible to operate without the full seven. However, it’s difficult for just five members to take care of everything and get things done. Seven provides more representation for the membership with regard to deliberations and decisions. A board of three would require a great deal of time on the part of those three volunteers. These three would hold a great deal of authority, with only two members needed to establish a majority. It is not believed that this would best serve the membership.
Article 7.E. Removal of a Board Member
Comment: King County has an official who is being charged for Driving Under the Influence, but still hasn’t resigned from his position. Should there be a provision that a Board member would be disqualified if they commit a crime?
Response: There are specific requirements in the law for removal of a Board member. The membership elects the Board members, so a vote of the membership is required for removal. If a Board member commits a crime that affects the performance of their duties, a Special meeting could be called (by either the Board or the membership as per Article 3. Section B.) for a vote on their removal. Removal of an Officer is different: The Board can remove an Officer from their position as an Officer, but they can’t remove them from the Board.
Comment: Can the Officer vote in a removal vote?
Response: Yes. There is nothing that would prevent them from doing so.
Article 8.D. President and Vice-President
Comment: What are the specific responsibilities of these positions and why aren’t they included?
Response: As written, this is the standard language used for these two positions. The specific duties they must perform are stated. Other duties “as may be prescribed by the Board of Trustees” allow the flexibility to add to those duties as the need arises and can be temporary assignments; for example, taking on a Commissioner’s tasks when a position is vacant.
Article 9.A. Where and When
Comment: The heading says ‘When’ but when is not defined in the section.
Response: A schedule of when the Board would meet was considered to be too limiting and was not included. In the past, the Board has met every other month. This year, due to the number of issues, the Board has been meeting every month. The section is revised to include that a minimum of six regular Board meetings be held each year.
Article 9.G. Open Meetings
Comment: “All meetings of the Board of Trustees and its committees shall be open for observation by all members...” Members should be able to participate at any meeting, but this makes it sound like they can attend but not participate.
Response: This language is from the law. ‘For observation’ clarifies that members have limited rights at Board or committee meetings. As guests, they cannot except to participate in deliberations, make motions or vote. In accordance with the standard procedures used to conduct business meetings, the Chair can invite participation, receive questions, and allow time for guests to present issues for the Board’s consideration, etc.