April 2020
Lawsuits are unavoidable in condo communities. When a condo corporation gets involved in a lawsuit, decisions about how to handle litigation involve the corporation’s legal counsel, insurance company, directors and management.
Lawsuits brought against a condo corporation can come from building residents dissatisfied with the condo board or their actions. It may be a non-resident filing against the corporation; possibly someone injured on the property. A vendor dispute may escalate to a lawsuit against the corporation.
Regardless of the reason, best practices for dealing with a lawsuit are the same.
Contact your insurance provider
Lawsuits relating to an injury are usually covered by the corporation’s liability insurance. Those relating to disagreements with the condo board are likely covered by Directors and Officers (D&O) coverage. Vendor lawsuits, and possibly resident lawsuits, may not be covered by any insurance.
Always contact your insurance provider as early as possible so they can inform the carrier. Insurance policies typically require timely notification which may mean when first aware that a lawsuit could result rather than when it is filed. Failure to provide timely notification, in writing, could result in denial of the claim. While there may be a risk of higher premiums simply because of this notification, the risk of not providing notification could have a greater effect on your policy and cost.
Contact legal counsel
Contact legal counsel if they are not already aware. If there is insurance coverage relating to a lawsuit, the insurance carrier is likely to defend the lawsuit. Their legal counsel may take over the case. They may choose to settle if the cost of defending against a lawsuit is higher than a settlement or to avoid similar future claims. If the legal action is not covered by insurance, the corporation’s legal counsel will likely determine if it is more economical to defend against the lawsuit or settle.
What else to consider
- A condo corporation should never ignore legal action filed against them. Lawsuits rarely go away quietly.
- Get professional assistance. A condo director who may be a lawyer should not serve as legal counsel.
- Avoid discussing the litigation with anyone, particularly involved individuals. Even “private” or board conversations may become public during a lawsuit. It is best to remain silent about any lawsuit except as directed by your lawyer or insurance provider.
Poor handling of litigation can turn it into an even bigger problem.
Lawsuits can be complex, expensive and time consuming. They create questions and concern. Following proper procedure is the best way to protect the community from excessive and unnecessary expenses relating to a lawsuit.
