Associations should seek to avoid disputes and lawsuits wherever possible through effective communications, fair dispute resolution practices and good governance. But in our litigious society, it is a fact of life that lawsuits are filed by, and against community associations. When the Association is on the receiving end of a lawsuit, there can be very serious consequences for the association unless certain actions are taken properly and in a timely fashion. The purpose of this article is to provide some highlights of what must be done when the association is named in a lawsuit – what “first aid” should be administered to improve the outcome for the association.
We will cover three broad categories in this article: legal deadlines, insurance issues and information management. There are obviously many other topics and questions that will arise depending on the type of lawsuit.
Legal Deadlines
Regardless of who the lawsuit is delivered to — whether an Association management office, a manager, or board member — it is very important for that person to note:
- the precise date of delivery
- the method of delivery
- to whom delivered
- keep complete copies of what was delivered
The deadline to respond to many lawsuits is measured from the date of “service of process.” In other lawsuits, the papers which are “served” or delivered to the association will already include a court date by which the association must file a formal response.
In our experience, the routing and delivery of the lawsuit documents to the attorney’s office is often delayed. If that happens, very little time may be left to prepare a response to lawsuit by the time paperwork gets into the attorneys’ hands. We recommend that you should not assume you know the legal deadlines, but promptly forward all documentation received to the association’s legal counsel immediately.
One example of hidden time deadlines shows up in small claims court cases. The plaintiff in a small claims court lawsuit cannot use legal counsel, but a defendant may choose to do so. If an association chooses to use an attorney in small claims court, that decision must be made in writing and filed with the Court no less than seven days before the date included in the lawsuit paperwork. In addition, a signature of an association representative (not its attorney) must be affixed on the paperwork filed with the Court. That means, if the lawsuit is delivered to legal counsel only one week before a court date in a small claims court lawsuit, it is probably too late to use an attorney.
Insurance Issues
When an association is sued, it has to make a decision in consultation with legal counsel about whether to report the claim to its insurers for possible defense. An association can certainly choose to delay reporting the claim, or to decide to never report the claim, but potentially significant consequences will flow from that decision.
Why? Because virtually every insurance policy requires prompt notice of claims. Insurers can deny any responsibility if the notice is late and their ability to handle the claim has been prejudiced. In addition, it can take weeks and even months for insurance companies to make a decision about whether a claim is covered or not. But an insurance company is not responsible for the association’s legal bills until after the insurer receives proper written notice. Therefore, an association may incur thousands of dollars in legal fees defending a lawsuit, which the insurer will never reimburse unless notice was properly given.
Information Management
Most lawsuits relate to past events and circumstances. One of the challenges attorneys face in defending associations is the fact that board members and managers move on to new pursuits, files are placed in storage or lost, and memories fade. As your legal counsel, we need information about the people involved and the documents involved.
Once a lawsuit has begun an association should not destroy any possibly relevant files, documents, e-mails etc. In addition to the legal obligation to preserve evidence, this information helps us to help you reconstruct the series of transactions and events at issue in the lawsuit. All document retention and destruction policies should be suspended for any property or issue that is in litigation.
These are examples some of the critical preliminary steps, or “first aid”, which must be undertaken immediately once anyone involved in the association receives notice of a lawsuit. If you would like to discuss this article in greater detail, feel free to call one of our attorneys at 303.432.9999.