Lawsuits against condominium, homeowner (HOA), and townhome community associations can be complex, costly, and time-consuming. For volunteer board members, receiving legal notices can also be an intimidating and stressful experience.
These legal challenges might involve:
- Property disputes
- Personal injury claims
- Claims for breach of fiduciary duty
- Breaches of contract often initiated by homeowners, contractors, or third parties
Navigating these situations requires not only legal expertise but also the right insurance coverage to safeguard the association’s interests. Insurance offers financial protection and potentially provides access to necessary resources such as legal counsel during the litigation process.
While it’s vital to consult with an insurance expert about your association’s specific policy details and required coverage, here are the key steps associations should take when facing a lawsuit.
Notify the Attorney and Insurance Provider
Once a lawsuit is filed, the association’s attorney and insurance provider must be promptly informed. Having the association’s attorney serve as the registered agent ensures the community association is promptly notified.
Attorneys are well-equipped to handle these notifications quickly and professionally, reducing the risk of missed deadlines that could result in costly consequences including default judgments. Additionally, using the attorney’s office as the registered agent provides stability (particularly when board turnover occurs) as legal notices will always be sent to a consistent and reliable location.
Understand Your Policy’s Scope
Many community associations carry liability insurance and directors and officers insurance. These policies typically provide coverage for personal injury, property damage claims, or breach of fiduciary duty claims brought against an association and the members of its board of directors. Often the policies will provide a “duty to defend,” meaning the insurer provides legal representation at its cost.
When potential coverage under an insurance policy is triggered, the insurance company often appoints an attorney to represent the association. This arrangement reduces the financial burden on the community, as the insurer covers legal fees and any settlements or judgments within the policy’s limits.
Working with Legal Counsel
Experienced legal counsel provided by the insurer offers several advantages, including:
- Familiarity with federal, state, and local laws
- Understanding of community association nuances
- Strategic experience in litigation or settlement scenarios
Attorneys collaborate with the board, property management, and insurance provider to prepare the case, gather facts, and represent the association in court or settlement negotiations.
Failing to work with experienced legal counsel can lead to costly mistakes, missed deadlines, weak legal defenses, and unfavorable outcomes that may result in significant financial and reputational harm to the association.
For these reasons, it’s critical that community associations work with qualified and experienced legal counsel who understand the unique challenges of community association law and have a solid working relationship with insurance carriers.
Proactive Risk Management
To ensure adequate protection, associations should regularly review their insurance policies. Comprehensive coverage, including directors and officers (D&O) liability insurance, is essential for addressing potential risks. This specific coverage protects board members against claims related to their decisions while managing the community.
However, not all community association claims are covered. For example, lawsuits alleging intentional misconduct by the board may fall outside the policy’s protection, leaving the association to bear additional legal expenses.
By understanding their insurance policies, maintaining open communication with their attorney, and proactively managing risks, board members can position their communities to handle legal challenges effectively.
Legal Resource
Lawsuits are a reality for many community associations. However, with the right insurance defense strategy, associations can mitigate financial and legal risks. Regular policy reviews and collaboration with legal counsel experienced with community associations are key to navigating these challenges successfully.
Do not hesitate to contact our law firm if your association has questions about community association defense insurance, litigation, or the legal process, or other legal concerns.
Please call 855-537-0500 or visit www.ksnlaw.com.
Since 1983, KSN has been a legal resource for condominium, homeowner, and townhome associations. Additionally, we represent clients in real estate transactions, collections, landlord/tenant issues, and property tax appeals. We represent thousands of clients and community associations throughout the US with offices in several states including Florida, Illinois, Indiana, and Wisconsin.
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