What to do if the Association is Sued
By: Michael Sottolano
One of the most frustrating issues a community association board of directors has to deal with is what to do if the association, the board, or an individual director is sued. It is the duty of the board to act in the best interests of the association and make decisions that are consistent with the association’s governing documents and promote the well-being of the community. Despite a board’s best-efforts, instances may arise where the association or directors may be sued by an individual or group and, in such cases, boards should consider the following:
- Contact legal counsel: As soon as a threat or notice of a lawsuit is received, it is important for the Board to consult with legal counsel regarding how to respond. The attorney can review the allegations, advise on the board’s legal options, and guide the board through the legal process. Be aware, there are deadlines for the association to respond to a lawsuit, and it is important to involve legal counsel early in the process so that counsel has enough time to prepare and file a timely response to protect the association’s best interests and preserve available defenses to the association.
- Notify the association’s insurance provider: Inform the association’s insurance carrier about the lawsuit promptly after receiving notice of the suit. In addition, some insurance policies may also require you to provide prompt written notice of demands or threats that might lead to a lawsuit. Depending on the allegations of the lawsuit and what insurance the association possesses, there may be coverage for defense costs for the claim and/or any damages that may be awarded. For example, if the claim involves injury or damage that occurred on the common areas or common elements, then the association’s general liability policy may cover, subject to any applicable deductible, the cost for legal counsel to defend the Association and any amounts that may need to be paid in order to resolve the claim (either pursuant to the order of the court or a settlement reached between the parties). The insurance carrier can guide the board through the claims process and, if defense coverage is available, coordinate appointment of legal representation. Boards would be well served to inquire of the association’s insurance carrier (or agent) before the need for a claim arises whether it has in place insurance defense coverage for non-monetary claims (such as injunctions or requests for declaratory relief) and for fair housing discrimination claims. Oftentimes in the community association context, a lawsuit may be filed by an owner requesting a court take certain action, such as to invalidate the results of an election or declare unenforceable a rule adopted by the board, but not necessarily that it award monetary damages. Some insurance policies will not provide coverage of the cost of defense if there are no monetary damages claimed by the plaintiff or for discrimination claims; however, in such instances, if the sued board, officer or director wishes to contest the lawsuit, it would still incur costs associated with defending itself against the claims. This is why it is important to check with the association’s insurance carrier before the need to file a claim arises to ensure that the association has in place the broadest available coverage for the costs of defense.
- Retain all records and documents: The association, officers and directors should preserve all records, documents, and correspondence related to the issue or incident which the lawsuit (or threat of lawsuit) involves when it is served with or receives notice of a lawsuit. This includes emails, board meeting minutes, contracts, financial records, and any other relevant documents. These records may be crucial in building a defense or responding to the lawsuit and, if relevant information possessed by the association or an officer or director is destroyed and cannot be produced, this can be detrimental to the association’s case and may result in sanctions being imposed by the court.
- Timely respond to the lawsuit and cooperate with legal counsel: In order for the association to best protect its interests and avoid a default judgment being entered against it in the lawsuit, it must timely respond to a lawsuit once it is served. In the case of complaints filed in a Virginia circuit court or DC Superior Court, a responsive pleading must be filed no later than 21 days after service of the complaint or else the court may enter a default judgment against the association. In regards to a warrant in debt filed in a Virginia general district court, an appearance must be made by or on behalf of the association at the first hearing scheduled in the case (time, date, and location of which is listed on the warrant) in order to dispute the claim and request the court set for trial. The board should work in conjunction with counsel to ensure appropriate pleadings are timely filed to lawsuits and that the association will be represented at necessary hearings. It is beneficial for the Board to cooperate and work closely with legal counsel during the pendency of the lawsuit and provide necessary information and documents requested by the attorney, as well as follow counsel’s advice regarding legal strategy. One or more designated representatives of the association should also be available, if needed, for appearances at hearings or trial to serve as a witness and/or be a decision maker on behalf of the association. It may be necessary for the board, or a designated representative, to attend court hearings and/or mediation sessions and potentially participate in settlement discussions if the opportunity arises.
- Inform the community: To the extent recommended by the association’s legal counsel, and consistent with counsel’s recommendations and any requirements in the association’s governing documents, the board may want to inform the community about the lawsuit. Transparency and communication with members are important to maintain trust and provide reassurance during a potentially challenging time. Also note, disclosure of the lawsuit and status thereof may need to be included in resale certificates issued by the association pursuant to the Virginia Resale Disclosure Act or the D.C. Condominium Act, if applicable.
- Follow the attorney’s guidance: Throughout the process, follow legal counsel’s guidance and advice. They will have the expertise and knowledge to navigate the legal proceedings and protect the best interests of the community association board of directors.
- Learn from the experience: After the lawsuit is resolved, take the opportunity to reflect on the experience and identify any areas where improvements can be made. It may be necessary to review policies, rules or procedures, enhance communication and transparency among the board and members, and make changes to prevent similar issues from arising in the future.
Dealing with a lawsuit can be a stressful and challenging experience for a community association board of directors. By seeking legal advice, working in concert with the recommendations of counsel, timely notifying insurance, and keeping good records of important documents and information, the board can work towards a resolution that protects the best interests of the association and its members.