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
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
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.