First, take a deep breath.

Second, remember that associations should seek to avoid disputes and lawsuits wherever possible through effective communications, fair dispute resolution practices, and good governance. But in our litigious American 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 timely and properly taken. The purpose of this article is to provide some highlights of what must be done when the association is named in a lawsuit.

Third, know your deadlines.  We will cover three broad categories in this article: legal deadlines, insurance issues, and information management.  There are obviously many other topics and questions which will arise depending on the type of lawsuit.

Legal Deadlines: If the lawsuit is delivered to an association management office, or to a manager or director, is very important to note the precise date, method of delivery, to whom delivered, and to 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 delivered will already include a court date by which the association must file a formal response. In our experience, the routing and delivery of these documents to our office is delayed, and very little time may be left to prepare a response to lawsuit by the time paperwork gets into our hands. We recommend you not try to calculate the legal deadlines, but promptly forward the documentation to legal counsel.

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 reduced to writing and filed with the Court no less than seven days before the date included in the lawsuit paperwork. Moreover, the Association must affix a signature of an association representative (not its attorney) on the paperwork to be filed with the court. Therefore, if the lawsuit is delivered to legal counsel 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 insurers for possible defense. An association can certainly choose to delay reporting the claim, or to decide to never report the claim, but there are potentially significant consequences flowing from that decision. 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 proper written notice has been provided to the insurer. Therefore, an association may incur thousands of dollars in legal fees defending a lawsuit, which the insurer will never reimburse unless notice has already been given.

Information Management: Most lawsuits relate to past events and circumstances. One of the challenges we 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 all the people involved as well as all 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, the file materials help us to help you reconstruct the series of transactions and events. All document retention and destruction policies should be suspended for any property or issue which is in litigation.

These are examples some of the critical preliminary steps, which must be undertaken immediately upon notice of lawsuit. If you would like to discuss this article in greater detail, feel free to call one of our attorneys at 303.432.9999.

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