Last week we spoke about what you want to see in a law firm or attorney. Let’s take it one step further today. Let’s say that you run into trouble and you get sued, or someone is threatening to sue the association or an officer or director. What should you do?
As a general rule, the minute that someone makes a claim against the association for any money at all, that claim should be transmitted to the insurance agent for the association, and that agent should notify all potential insurance companies that someone is making a claim against the association for money and that the association seeks a defense and coverage of the claim.
Standard in any insurance policy is a clause that requires the insured to promptly notify the insurance company of any potential claim. This allows the insurance company to immediately investigate the claim, and potentially settle it for reasonable terms. If the association fails to timely report a claim and only reports the claim after a lawsuit is filed against the association, the carrier may deny coverage, claiming that the association knew about the demand before suit was filed, the carrier could have settled the case prior to a lawsuit being filed, and now, as a result of the association’s failure to timely report the claim, the insurer is prejudiced. The carrier may now outright deny coverage. So again…… any time someone makes a claim against the association seeing damages or reimbursement of any kind, place the association’s agent and insurance companies on notice of the claim immediately.
Are you covered for the claim? You cannot insure yourself or the association for intentional wrongdoing. If you were able to, you may want to beat up your enemy, and have your insurance company pay the bill when you get sued. For obvious reasons, public policy prevents insuring yourself for such intentional actions. However, the association or an officer or director does get sued and the complaint alleges intentional misconduct, the insurance carrier still generally has a duty to defend the association, that officer and director against such claims. The insurance carrier will normally appoint an attorney to represent the association, that officer or director in a lawsuit. However, they are likely to receive a “reservation of rights” letter. This letter to the association, or the officer or director generally says that the insurance company is in receipt of the lawsuit filed against you. The insurance company has agreed to assign counsel to represent you. However, since the complaint alleges intentional misconduct, and the insurance policy does not cover intentional misconduct, the insurance company is reserving its rights not to pay any judgment against you if a judge or jury makes a finding that your conduct was intentional.
Suppose you are no longer on the Board but get sued as a result of actions you are alleged to have taken as a Board member? The bylaws of the association normally contain a very broad indemnification clause that requires the association to indemnify anyone who gets sued as a result of actions taken while a director, even after completing your service. Therefore, you would want the association to immediately provide a defense and coverage should you be sued for anything you are alleged to have done as a director.
Do you have the right to tell your insurance carrier that you want a certain attorney or law firm representing you in the lawsuit? Perhaps, if there is language to that effect in the policy. You have to ask.
The bottom line —- it’s best to stay out of trouble so you don’t have to worry about any of this. But as some of you already know, anyone can get sued for anything at any time.
