We all hope to avoid conflict and to resolve disputes informally before they go to court.  That is why associations are required to have written dispute resolution policies.  But sometimes, a lawsuit is unavoidable.  If you are a manager or board member for an association that has been sued, there are a number of important steps that must be taken early in the process.  This article summarizes some of those initial actions.

► Document the precise date and manner of service (i.e. summons and complaint were received how, where, by whom, and precise date).

These details are important because there are strict time limits and formalities for delivering and responding to a lawsuit.  Failure to respond could result in a default judgment being granted by the court.  This means your association has lost the lawsuit without ever having its day in court.  It is difficult to defend a lawsuit when the information provided is merely “the lawsuit documents were found in someone’s inbox sometime in the last week or so.”

► Involve others.  Notify the president of the Board, your supervisor, and legal counsel, and then follow up.

If you are the first person provided with the lawsuit, you need to involve others who may have decision-making power and recommendations.  How to respond to a lawsuit is not your sole decision.  Follow-up is important.  All of us have experienced that situation where an email is overlooked or pushed down off the screen because of so many other emails.  But time is of the essence at the beginning of a lawsuit.  Some response deadlines allow very short periods of time to respond.  Example: the Colorado Civil Rights Division (CCRD) expects very detailed responses within ten (10) days.

► Decide whether the association wants to report the lawsuit to the association’s insurance company.

For some small lawsuits, the association may decide not to report the claim to help keep reported claim experience low with a goal of keeping insurance rates low.  On the other hand, the insurance company can provide a free legal defense.  The association’s incurred legal expense may be greater than any possible increased insurance costs if any.  In addition, delayed reporting of claims may jeopardize the availability of insurance coverage for the claim.  This is a good time to obtain advice from the association’s legal counsel and insurance agent.  If the decision is made to report the claim to the insurer, determine if you, the insurance agent, or the lawyer will provide notice to the insurer.  (We generally prefer to handle the notification to insurance companies so that notice is done properly, promptly, and to ensure that all appropriate insurers are notified.)

► Report to insurers promptly, properly, and in writing to the correct office.

An insurer can deny a claim if it is not promptly reported.  Did you know that just simply sending a claim to your insurance agent may not constitute proper notification to the insurance company?  This is because your insurance agent is a middle person, not an insurer.  Each insurance company which may have a role in defending a claim or lawsuit must, in turn, be notified by the insurance agent.  If a law firm will report to insurers, it needs complete contact information for the insurance agent.  (Name of agent and insurance agency, mailing and email addresses, phone, and insurance company’s name and policy number(s) if available.)

► Learn about any prior interactions with the persons involved in the lawsuit concerning the topics of the lawsuit.

The lawsuit is simply a summary of what is likely a lengthy and complicated historical situation. Whoever is going to respond to the lawsuit needs to have the details, documents, and communications to properly evaluate the facts, circumstances, legal exposure, and legal defenses.  The goal is to learn who knows about the lawsuit, what documentation exists concerning the background to the lawsuit, and where the information is located or can be obtained.

► Preserve the evidence.

It is extremely important to make sure that emails, documents, photographs, videos, and items of property which might be evidence are preserved in their original condition.  Halt all document destruction policies concerning anything which could possibly be important to the lawsuit.  Note: emails and documents from many years ago may matter.  It is important to take affirmative steps to preserve evidence and make sure it is not destroyed or altered.  This is referred to as a “litigation hold.”  Even inadvertent destruction of evidence can lead to very poor outcomes and adverse court orders.  The reason is that the judicial system presumes that information which is destroyed was unfavorable for the person who did so.  In addition, dates, details, and documentation matter, and such details usually help the association prevail in court.

► Cease communications about the dispute with third parties and the disputing parties (except for notifications described above with Board members and legal counsel).

Communications may have been occurring between the disputing parties before a lawsuit.  But, the transition to a lawsuit is a significant event.  The person or company which filed the lawsuit has made a major decision to incur legal expense by instituting litigation.  They want to win and to win quickly.  This is not a good time to be talking to them because you (or others) may inadvertently say something which can be taken out of context and used against you or the community in future proceedings.  This is the time to involve the lawyers and allow them to coordinate communications.

► Rely on professionals, especially your legal counsel.

With the onset of a lawsuit, it is not the time to “wing it” on your own.  This is a time for forthright conversation with the association’s entire Board, legal counsel, and perhaps the insurance agent. Communications between the association and legal counsel are protected from disclosure by virtue of the attorney-client privilege.  Your attorneys will be in a position to provide the best legal advice if all of the facts (both favorable and unfavorable) are shared with them early in the process.

Please feel free to contact the author or an Altitude Community Law attorney if you have any questions at 303.432.9999 or [email protected].

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