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Director Liability in Colorado: The "Wanton and Willful" Standard and the Business Judgment Rule

CIC-SC Editorial Team··~13 minutes read

Colorado Law · Board Fundamentals · Director Protection

Director Liability in Colorado: The “Wanton and Willful” Standard and the Business Judgment Rule

Texas and Florida directors usually learn one doctrine: the business judgment rule. Colorado directors inherit three overlapping layers instead. The Common Interest Ownership Act sets its own liability standard, borrows the Nonprofit Act’s prudent-person test for one category of decision, and the courts’ business judgment rule still applies to covenant enforcement. Knowing which layer a decision sits in matters before the vote.

By the CIC-SC Editorial Team Updated November 8, 2026 Reading time: ~13 minutes Audience: Colorado Boards, Officers, Managers, Counsel

Educational notice. This information is educational in nature and should not be construed as legal advice. Statutory language is quoted from the Colorado Common Interest Ownership Act and the Colorado Revised Nonprofit Corporation Act as published by the Office of Legislative Legal Services at the time of writing. Consult qualified association counsel regarding legal interpretation specific to your jurisdiction.

Verified against the Colorado Revised Statutes 2024 (OLLS uncertified printout) and HB 26-1099 (effective August 12, 2026). Later amendments are possible.

The Short Version

  1. Declarant-appointed directors and officers are “required to exercise the care required of fiduciaries of the unit owners” (C.R.S. § 38-33.3-303(2)(a)).
  2. Directors and officers not appointed by the declarant are not liable for actions or omissions in the performance of their duties “except for wanton and willful acts or omissions” (§ 38-33.3-303(2)(b)).
  3. Reserve-fund investment is the exception. For that one category, officers and directors are subject to the Nonprofit Act’s standards in § 7-128-401: good faith, the care of an ordinarily prudent person in a like position, and a reasonable belief that the action is in the association’s best interests (§ 38-33.3-303(2.5)).
  4. The common-law business judgment rule still operates. In Colorado Homes, Ltd. v. Loerch-Wilson (Colo. App. 2001), the court held that an association and its management company were entitled to a business-judgment-rule instruction on a failure-to-enforce claim, because a covenant-enforcement decision “must be made in good faith and must not be arbitrary.”
  5. How the layers fit together is not settled. CICSC has not located a verified Colorado appellate decision construing § 7-128-401 against a CCIOA board, or explaining how § 303(2)(b) and § 7-128-401 interact outside reserve investment.
Why the Texas and Florida articles do not translate. The Texas and Florida guides build on each state’s nonprofit-code standard of conduct and its common-law rule. Colorado’s community-association statute writes its own liability test for owner-elected directors, phrased as a limit on liability (“wanton and willful”), not as a standard of care. Swapping the state name in either article would misstate Colorado law.

The Statutory Text: § 38-33.3-303(2) and (2.5)

Section 303 of the Colorado Common Interest Ownership Act (CCIOA) governs the executive board and officers. Subsection (2) reads, in full:

“(2) Except as otherwise provided in subsection (2.5) of this section:

(a) If appointed by the declarant, in the performance of their duties, the officers and members of the executive board are required to exercise the care required of fiduciaries of the unit owners.

(b) If not appointed by the declarant, no member of the executive board and no officer shall be liable for actions taken or omissions made in the performance of such member’s duties except for wanton and willful acts or omissions.”

Subsection (2.5) then carves out reserves:

“(2.5) With regard to the investment of reserve funds of the association, the officers and members of the executive board shall be subject to the standards set forth in section 7-128-401, C.R.S.”

For that purpose, § 303(2.5)(c) defines “officer” to include “any person to whom the executive board delegates responsibilities under this article, including, without limitation, a managing agent, attorney, or accountant employed by the executive board.”

Three features of the text matter to a working board:

  • The split turns on who appointed the person, not on whether the community is a condominium or a planned community. CCIOA covers both.
  • Subsection (2)(b) covers officers as well as directors. Its words reach “no member of the executive board and no officer.”
  • Subsection (2)(b) is phrased as a liability limit. It says when a director “shall [not] be liable.” It does not describe how a board should prepare for or deliberate on a decision. That guidance comes from the governing documents, good governance practice, and, to the extent they apply, the Nonprofit Act and the common law.

Layer One: Declarant Appointees and the Fiduciary Standard

During declarant control, the declarant appoints some or all of the board. Those appointees “are required to exercise the care required of fiduciaries of the unit owners” (§ 303(2)(a)). The statute directs that duty to the unit owners.

This matters when a receiving board reviews what happened before turnover. Within 60 days after owners other than the declarant elect a board majority, the declarant must deliver association property and records, including an accounting and financial statements audited by an independent CPA, with the audit expense not charged to the association (§ 303(9)). From August 12, 2026, HB 26-1099 adds the declarant’s reserve study to those deliverables (§ 303(9)(n)). See Declarant Control and Turnover in Colorado.

Layer Two: Owner-Elected Directors and “Wanton and Willful”

Once owners elect the board, § 303(2)(b) applies. CCIOA does not define “wanton and willful,” and CICSC has not located a verified Colorado appellate decision construing the phrase in § 303(2)(b). Its meaning in any dispute is a question for counsel; a definition borrowed from another area of law is not a safe substitute.

What the text itself shows:

  • It speaks to personal liability. By its words it addresses whether a board member or officer is liable. It does not speak to whether an association action is valid under CCIOA or the governing documents.
  • It is limited to “the performance of such member’s duties.” The board’s authority is bounded by § 303(1)(a) (the board acts for the association except as the declaration, the bylaws, § 303(3), or other CCIOA provisions provide) and § 303(3)(a) (the board may not amend the declaration, terminate the community, or elect board members or set their qualifications, powers and duties, or terms, though it may fill vacancies).
  • It sits beside other statutes. Section 38-33.3-310.5 applies the Nonprofit Act’s conflicting-interest section, § 7-128-501, to board members, and § 38-33.3-209.5 requires a written conflict policy. See Director Conflicts of Interest in Colorado.

Layer Three: Reserve Investment and § 7-128-401

Section 7-128-401(1) of the Colorado Revised Nonprofit Corporation Act requires each director, and each officer with discretionary authority, to discharge duties:

“(a) In good faith; (b) With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and (c) In a manner the director or officer reasonably believes to be in the best interests of the nonprofit corporation.”

  • Reliance (§ 7-128-401(2)). A director or officer is entitled to rely on information, opinions, reports, or statements, including financial statements, prepared or presented by officers or employees the director or officer reasonably believes reliable and competent; by legal counsel, a public accountant, or another person as to matters within that person’s professional or expert competence; or, for a director, by a board committee the director is not on, if the director reasonably believes it merits confidence.
  • The knowledge limit (§ 7-128-401(3)). A director or officer is not acting in good faith if the director or officer has knowledge that makes that reliance unwarranted.
  • The liability provision (§ 7-128-401(4)). A director or officer is not liable to the corporation or its members for an action or omission if the director or officer performed the duties of the position in compliance with the section.

For a CCIOA association, § 303(2.5) applies these standards to “the investment of reserve funds,” and its definition of “officer” reaches a managing agent, attorney, or accountant to whom the board delegates responsibilities. Every association must also adopt a reserve-investment policy (§ 38-33.3-209.5(1)(b)(VI)). For the governance framework, see Safety, Liquidity, Yield: Reserves Are a Treasury, Not a Portfolio.

The open question. Many Colorado associations are nonprofit corporations, and § 7-128-401 by its terms governs nonprofit-corporation directors generally. Section 38-33.3-319 provides that where CCIOA conflicts with the Nonprofit Act, CCIOA controls. Whether § 303(2)(b) displaces § 7-128-401 for non-reserve decisions, or whether the two operate together, is not resolved in any Colorado appellate decision CICSC has verified. This is a question for association counsel.

The Common-Law Business Judgment Rule in Colorado

Colorado Homes, Ltd. v. Loerch-Wilson, 43 P.3d 718 (Colo. App. 2001)

Owners sued their association (Trail Ridge Association, doing business as Cross Creek HOA) and its management company for failing to enforce the covenants. The Court of Appeals held the defendants were entitled to a business-judgment-rule jury instruction. It reasoned that “covenant enforcement may require the exercise of discretion as to both the timing and the manner of enforcement,” and, citing Rhue v. Cheyenne Homes, Inc. (1969), that the decision “must be made in good faith and must not be arbitrary.” The court said that test “is the substance of the business judgment rule” and held the defense could be asserted against both the contract claim and the breach-of-fiduciary-duty claim, which were remanded for a new trial.

On its record, the case applied a business-judgment-type test to covenant-enforcement decisions by an association and its manager. It rests on common law; it does not construe § 303(2)(b) or § 7-128-401.

Woodmoor Improvement Ass’n v. Brenner, 919 P.2d 928 (Colo. App. 1996)

The architectural control committee had formally approved plans that clearly showed a satellite dish, and the owners relied on that approval. The court held the association was equitably estopped from enforcing its antenna covenant, rejected the argument that an association is immune from estoppel the way a city may be, and held that an owner who was a director but did not take part in the approval decision did not breach a fiduciary duty to the corporation. See Architectural Review in Colorado.

Limits Stated in the Sources

Each layer has stated limits. These are the points counsel typically examines, not predictions about any case.

  • Bad faith or arbitrariness falls outside the Loerch-Wilson test by its own terms.
  • Knowledge that makes reliance unwarranted defeats good faith under § 7-128-401(3), where that section applies.
  • Loans and conflicts. The Nonprofit Act prohibits loans by a corporation to its directors or officers and makes a director or officer who assents to or participates in one liable for the amount until repaid (§ 7-128-501(2)). Section 7-128-501(3) provides that a conflicting-interest transaction is not void or voidable solely because of the conflict if one of three listed conditions is met.
  • Authority. Section 303(3)(a) lists things the board may not do at all.
  • Architectural decisions. CCIOA requires approval or denial of owner applications to follow the standards and procedures in the declaration, rules, or bylaws, and not to be made “arbitrarily or capriciously” (§ 38-33.3-302(3)(b)).

Indemnification, Insurance, and the Articles

Colorado law provides other layers, each depending on what the association has adopted or bought:

  • CCIOA power to indemnify and insure. Subject to the declaration, and without specific authorization in it, the association may provide for indemnification of its officers and executive board and maintain directors’ and officers’ liability insurance (§ 38-33.3-302(1)(m)).
  • Limiting monetary liability in the articles. For an association that is a nonprofit corporation, if the articles so provide, the corporation shall eliminate or limit a director’s personal liability for monetary damages for breach of fiduciary duty, except for breaches of the duty of loyalty, acts or omissions not in good faith or involving intentional misconduct or a knowing violation of law, acts specified in § 7-128-403 or § 7-128-501(2), and transactions from which the director derived an improper personal benefit (§ 7-128-402(1)).
  • Employee torts. No director or officer is personally liable for injury arising from a tort committed by an employee unless the director or officer was personally involved or committed a criminal offense in connection with it (§ 7-128-402(2)).
  • Indemnification conditions. A nonprofit corporation may indemnify a director made a party to a proceeding if the director acted in good faith, reasonably believed official-capacity conduct was in the corporation’s best interests (and other conduct at least not opposed to them), and, in a criminal proceeding, had no reasonable cause to believe the conduct unlawful (§ 7-129-102(1)).
  • Insurance. A nonprofit corporation may buy insurance for directors, officers, employees, fiduciaries, and agents whether or not it would have power to indemnify them for the same liability (§ 7-129-108).

Whether any of these protections exist for a given board depends on its own articles, bylaws, and policies. CICSC does not advise on insurance coverage; see Directors and Officers Insurance for the governance questions boards bring to their broker and counsel.

Pre-1992 Communities: A Reach Question

For communities created before July 1, 1992, CCIOA applies only through the sections listed in § 38-33.3-117; “[e]xcept as expressly provided for in this section, this article shall not apply” to them (§ 117(3)). The list includes § 303(1)(b), (3)(b), (4)(a) and (4)(b), and § 302(1)(m). It does not list § 303(2) or (2.5).

Which standard measures a pre-1992 board’s conduct (its governing documents, the Nonprofit Act, the common law, or something else) is a question for counsel. A pre-1992 community may elect full CCIOA coverage; in Accetta v. Brooks Towers Residences Condominium Ass’n, 2021 COA 87, the Court of Appeals held that § 38-33.3-118 is the exclusive means of making that election. See Does CCIOA Apply to Your Pre-1992 Community?

The Information Right

Notwithstanding the declaration or bylaws, every board member is entitled to all information related to the association’s responsibilities and operation obtained by any other board member, including reports of detailed monthly expenditures, contracts to which the association is a party, and communications, reports, and opinions to and from any board member or any managing agent, attorney, or accountant employed or engaged by the board to whom it delegates responsibilities (§ 303(1)(b)). Section 117(1)(i.7) and (1.5)(h) list this subsection for pre-1992 communities. This matters when a director is asked to vote on a contract no one has circulated.

Practical Scenarios

These scenarios show which part of the framework a type of decision touches. They are not predictions of how a court would rule on any facts, and the open question above applies to each.

Scenario 1: The Reserve Certificate Ladder

The treasurer and the manager propose moving reserves from a money-market account into a ladder of certificates of deposit. Framework: reserve investment, the subject of § 303(2.5) and § 7-128-401, including the reliance provision in § 7-128-401(2). The association’s reserve-investment policy under § 209.5(1)(b)(VI) is its own written standard for the decision.

Scenario 2: The Unenforced Fence Covenant

Owners complain that the board has let nonconforming fences stand for two years. Framework: covenant enforcement, the setting of Loerch-Wilson, together with the enforcement policy required by § 209.5(1)(b)(IV) and the fine rules in § 209.5(1.7)(b).

Scenario 3: The Vendor That Failed

A landscape contractor the board selected after reviewing three bids goes out of business mid-season. Framework: an ordinary operational decision by owner-elected directors, the kind of decision § 303(2)(b) addresses. The selection record is what anyone later reviews.

Scenario 4: The Director’s Relative’s Company

A director’s sibling owns the company proposed for a paving contract. Framework: conflict of interest. A sibling is listed as a “party related to a director” in § 7-128-501(5), which § 310.5 applies to the board, and the conflict policy required by § 209.5(4) sets the association’s procedure.

Scenario 5: The Board That Amends the Declaration

A board adopts a “rule” that changes what the declaration permits. Framework: authority; the board may not amend the declaration (§ 303(3)(a)). In Houston v. Wilson Mesa Ranch HOA, 2015 COA 113, the court held unenforceable, on the covenants before it, a board-adopted procedure that banned unapproved short-term rentals and imposed fines, reasoning that the association “cannot rely on that authority to enforce a nonexistent covenant provision.”

Practices Boards Commonly Use

None of these is a legal requirement or advice about any particular decision. They are record-keeping practices boards commonly use.

  • Materials circulated before the vote, consistent with the § 303(1)(b) information right.
  • The decision type named in the minutes (reserve investment, enforcement, contract, policy).
  • Reliance recorded: who advised (counsel, CPA, reserve specialist, engineer) and what was received.
  • The association’s own written policies followed, including the nine responsible governance policies in § 209.5(1)(b).
  • Conflicts handled on the record under the § 209.5(4) policy and § 7-128-501.
  • Authority checked first in the declaration, the bylaws, and § 303(3).
  • A periodic review with counsel of what the articles, bylaws, and insurance actually provide.

Frequently Asked Questions

Does Colorado have a business judgment rule for HOA boards?
Colorado has a common-law version applied to covenant enforcement. In Colorado Homes, Ltd. v. Loerch-Wilson, 43 P.3d 718 (Colo. App. 2001), the Court of Appeals applied a good-faith, not-arbitrary test it called “the substance of the business judgment rule” to an association’s covenant-enforcement decisions. CCIOA separately sets liability standards in § 38-33.3-303(2). How these apply to a particular decision is a question for association counsel.
What does “wanton and willful” mean in § 38-33.3-303(2)(b)?
CCIOA does not define it, and CICSC has not located a verified Colorado appellate decision construing the phrase in that section. The text says owner-elected directors and officers are not liable for actions or omissions in the performance of their duties except for wanton and willful acts or omissions. Its meaning in a particular dispute is a question for counsel.
What standard applies to declarant-appointed directors?
Section 38-33.3-303(2)(a) requires declarant-appointed officers and directors to exercise the care required of fiduciaries of the unit owners, a different standard from the one in § 303(2)(b). Its application to particular conduct is a question for counsel.
When does the Nonprofit Act’s prudent-person standard apply?
CCIOA expressly applies § 7-128-401 to the investment of reserve funds (§ 38-33.3-303(2.5)) and for that purpose treats a managing agent, attorney, or accountant to whom the board delegates responsibilities as an “officer.” Whether § 7-128-401 also governs other decisions of a CCIOA board is not settled in any decision CICSC has verified; association counsel can address it.
Does the “wanton and willful” standard reach communities created before 1992?
Section 303(2) is not among the sections § 38-33.3-117 lists for communities created before July 1, 1992, and § 117(3) says CCIOA otherwise does not apply to them. How a pre-1992 board’s conduct is measured is a question for counsel.

Key Takeaways

  • Colorado uses three layers: a fiduciary standard for declarant appointees, a “wanton and willful” liability limit for everyone else, and § 7-128-401 for reserve investment.
  • The common-law test from Loerch-Wilson (good faith, not arbitrary) was applied to covenant enforcement.
  • How § 303(2)(b) and § 7-128-401 interact outside reserves is unsettled; it is a counsel question.
  • Conflicts, loans, and acts outside the board’s authority are governed by separate rules.
  • § 117 does not list § 303(2) for pre-1992 communities; which standard reaches those boards is a counsel question.

References & Sources

  1. C.R.S. § 38-33.3-303(1)(a)–(b), (2), (2.5), (3)(a), (9) — Executive board members and officers. Colorado Revised Statutes 2024, Title 38 (OLLS uncertified printout). content.leg.colorado.gov — crs2024-title-38.pdf
  2. C.R.S. § 38-33.3-117 — Applicability to preexisting common interest communities; § 38-33.3-118 — Procedure to elect treatment under CCIOA.
  3. C.R.S. § 38-33.3-302(1)(m), (3)(b) — Powers of unit owners’ association.
  4. C.R.S. §§ 38-33.3-209.5(1)(b), (1.7)(b), (4); 38-33.3-310.5; 38-33.3-319.
  5. C.R.S. §§ 7-128-401, 7-128-402, 7-128-501, 7-129-102, 7-129-108 — Colorado Revised Nonprofit Corporation Act. Colorado Revised Statutes 2024, Title 7. content.leg.colorado.gov — crs2024-title-07.pdf
  6. HB 26-1099, Session Laws 2026, ch. 42 (adds § 303(9)(n)), effective August 12, 2026. leg.colorado.gov/bills/hb26-1099
  7. Colorado Homes, Ltd. v. Loerch-Wilson, 43 P.3d 718 (Colo. App. 2001). Caselaw Access Project
  8. Woodmoor Improvement Ass’n v. Brenner, 919 P.2d 928 (Colo. App. 1996). Caselaw Access Project
  9. Houston v. Wilson Mesa Ranch Homeowners Ass’n, 2015 COA 113, 360 P.3d 255. Caselaw Access Project
  10. Accetta v. Brooks Towers Residences Condominium Ass’n, 2021 COA 87. Slip opinion

Related Resources & Additional Reading from the CIC-SC Library

Tags: Colorado director liability · wanton and willful · C.R.S. 38-33.3-303(2) · business judgment rule · C.R.S. 7-128-401 · reserve investment standard · Colorado Homes v. Loerch-Wilson · CCIOA

Disclaimer. This article is published by the Common Interest Community Standards Council for educational and informational purposes only. It is not legal advice and does not establish an attorney-client relationship. Statutory references and procedural frameworks are intended to support informed governance, not to substitute for advice from qualified Colorado legal counsel. Boards and managers should consult their association’s attorney about the application of any statute, governing-document provision, or governance decision to their specific circumstances. CIC-SC, its authors, and its members assume no liability for actions taken in reliance on this content.

Published by the Common Interest Community Standards Council (CICSC). Part of the CICSC Member Education Library. © 2026 CICSC. Educational use permitted with attribution.

Notice: CICSC provides educational resources, governance standards, and practical advisory support. CICSC does not provide legal advice, accounting advice, tax advice, engineering advice, insurance advice, or reserve study services. Board members and associations should consult qualified professionals for matters requiring professional judgment or legal interpretation.