You Run a Community-Based Nonprofit – What to Do When You Have an Accident, Claim or Lawsuit, Part 1

This is the first of a two-part series on what non-profits should do when a lawsuit is filed against them.|

February 13, 2012

This is the first of a two-part series on what non-profits should do when a lawsuit is filed against them. Part 2 of the series can be found here. When Can a Lawsuit Be Filed? In each state, there are various statutes of limitations or time limits in which a lawsuit must be filed for damaged persons to protect their claims and preserve their rights. In cases claiming bodily injury, persons who are injured must have concluded their claim within a specified time from the date of the incident, or file a lawsuit by the close of court on that specified date if they wish to pursue the claim. Minors enjoy additional protection under the law. They have until a specified time past their date of majority to file a lawsuit, regardless of when the accident happened. The statute of limitations for property damage or breach of a written contract may even be longer. In some cases, people with mental infirmities may have no applicable statutes of limitations. What Court Will Be Used? Each state differs and some have names you may not have heard before. In California, for example, there are two levels of state courts where most of the lawsuits will likely be heard. These are Small Claims and Superior Courts. Small Claims Court has a jurisdictional limit, usually in the range of $5,000 to $7,500. Claims for larger amounts cannot be filed in Small Claims. Attorneys are often not permitted in Small Claims Court. The parties represent themselves. Superior Court is where most of the lawsuits in which nonprofits are likely to be involved in will be filed. There is no limit to the amount of damages that can be awarded in Superior Court unless there is a specific statutory cap. Federal Court is the most likely place for employment cases involving allegations of discrimination or harassment. Cases involving out-of-state parties are also candidates for Federal Court. Where Will the Lawsuit Be Filed? The geographical location of the court depends on where the accident or alleged wrongdoing happened, where the plaintiff lives, or where the defendant does business. The lawsuit is usually filed in the county where the event happened, but there are exceptions. If the plaintiff lives in a different county, the court may permit the lawsuit to be brought in that county rather than the one where the event occurred. How Will I Know a Lawsuit Has Been Filed? In fact, you may have a lawsuit "filed" against you and/or your organization but not know about the lawsuit until it has been "served." Sometimes lawsuits are filed with the court to preserve the "statute of limitations" discussed earlier, but not immediately served. Typically, you will not know that a lawsuit has been filed until you are served. You may be served with a lawsuit when a process server shows up on your doorstep or when you receive a large package of unfamiliar documents in the mail. As a practical matter, it is useless to try to avoid being served a lawsuit. If you or your organization have been named in a lawsuit, you or your organization will eventually be served. It does nothing but antagonize the parties when people try to avoid service or assume that service has not been completed simply because they did not touch the papers left on the desk, or because they received the papers via the mail. Keep in mind that service by mail is recognized by the courts and the clock starts running five days after the date those papers were mailed to you. If they are left on your doorstep and not given to anyone in person, service is probably still valid and the clock has begun ticking. Beat the Clock The first thing to remember when you are served with a lawsuit is, "Don't panic!" If you have documented all incidents properly as described previously, and forwarded this information to your insurance broker, this lawsuit will probably not be a surprise to you or your insurer. The second thing to remember is that the clock is ticking. What clock? The 30 day clock. In most states, the person or organization served has 30 days from the day the suit was served to respond to the lawsuit. While it is possible for the defense attorney to request a second 30 days from the plaintiff attorney, he or she is not obligated to grant it. In most jurisdictions, no extension can be granted without notice to and approval of the court where the suit is filed. In Federal Court, you only have 20 days from the date you were served to respond and extensions are rare. Because of these very serious time constraints, it is important to take the following steps immediately upon being served with a lawsuit:

Note the time and date you were served with the lawsuit directly on your copy of the lawsuit.
Make a copy of all of the papers you have received, keeping one for yourself and sending the original to your insurance broker.
Call your insurance broker to let him or her know that lawsuit papers are coming.

What Happens if I Don't "Beat the Clock?" It is extremely important to get a copy of the lawsuit to your insurance broker immediately because the plaintiff's attorney can enter a default judgment against any defendant who is late in filing a response by even a single day! This means that the court records a judgment for the full amount of the damages claimed by the plaintiff against you or your organization. The judgment is as final as a verdict after a trial. The judgment gets recorded even though there has been no trial, no discussion, no showing of fault, no anything. It gets filed just because you didn't respond in the time required. Period. There can be relief from a default judgment, but the longer it is in place before anyone challenges it, the harder and more expensive it is to get the default judgment set aside. Remember, insurance policies typically require the insured to notify the insurer immediately when ever a claim is made or a lawsuit received. Failing to make proper and prompt notice to your insurer can void the contract and deprive you of insurance coverage. Every organization should designate one person to accept service of lawsuits. All employees, volunteers, directors and officers should be instructed not to accept service, but to refer service to the appropriate person. The "process server" who comes to deliver the lawsuit should be told where he or she can find that person. Remember, it never improves the situation to try to evade service of a lawsuit. It is best to establish a protocol so that these important papers are delivered to the right person immediately. What if the Media Calls? If your nonprofit organization is named in a lawsuit, even one that is unjustified, it has the potential to damage your reputation in the community. Adequate preparation is essential for an effective response to the media during a crisis. The following guidelines will enable you to turn a potentially risky activity into an opportunity for your organization:

Designate a media spokesperson (and at least one back-up). These persons should be trained in advance of a crisis about what is and is not appropriate information to release to the media.
Make sure that everyone knows the identity of the designated spokespersons(s). Nonauthorized persons, including staff, volunteers and board members, should not talkto the media.
Do not admit wrongdoing. Keep in mind that anything said to the media by anyone in a position of authority can be used against the organization in any litigation that results. As tempting as it might be to admit liability to "get it off your chest," you can be sure that this admission will greatly diminish your attorney's ability to defend you in a lawsuit.
Remember that "no comment" says a lot. "No comment" fills pages in the minds and imaginations of readers and viewers. What is the organization trying to hide? Isn't there anything it can say about this dreadful event? Count on the fact that a skillful reporter will find someone to comment about the incident — including your organization's handling of the crisis. Remember to think carefully about what you say and what you don't say.
Stay calm and "on message." The key is focusing on the message you want to deliver. Advance preparation is necessary.
Deliver a positive, truthful message about your organization. While it is important not to evade a reporter's questions altogether, always begin your response with a positive message about your organization which incorporates your commitment to safety. For example, "The mission of the Youth Activities Center is to promote safe recreational activities for disadvantaged children in this community. Our commitment to safety is reflected in our safety training programs for athletes, rigorous screening and training program for volunteer coaches, and provision of appropriate safety gear for all participants."
Do not improvise your answers. If you do not know the information asked by the reporter, admit that fact and if appropriate, pledge to find out as soon as practical. Establish a time and place to provide information updates.
Show concern and compassion. Compassion for victims and those who are disadvantaged by circumstance, physical disability or economic status is at the heart of the work of many community-based nonprofits. The public expects a nonprofit spokesperson to demonstrate compassion. Never dismiss an incident where victims are involved as inconsequential.

Which Insurer Will Handle the Lawsuit? You have been served with a lawsuit, identified and recorded the date you were served and sent the papers along to your insurance broker. Now what? Your insurance broker will forward it to the appropriate insurers, depending on the type of claim and whether the lawsuit is one that qualifies for defense by an insurer. If there is a question as to whether or not an insurance policy will defend the lawsuit, your broker will send that lawsuit to any insurer that might have an obligation to defend or indemnify you or your organization for the claims contained in the suit. If your insurer determines that the policy does not cover the lawsuit in question, it must tell you that in writing and explain exactly why the policy does not apply. When an insurer does have an obligation to defend the lawsuit, it will send you a letter telling you what lawyer it has hired to represent you and/or your organization. In some cases, your insurer may send you a letter that says that it agrees to defend you, but only under certain conditions. That is called a "reservation of rights" letter. What is a Reservation of Rights Letter? A reservation of rights letter explains that, because some causes of action in the lawsuit are not covered by the policy, the insurer will defend without becoming obligated to pay damages awarded as a result of acts not covered by the policy. It is important to remember that the reservation of rights letter does not mean an insurance company is not going to defend the organization. It means that the insurance company is going to defend the organization, but the company is making sure you understand that some of the allegations in the suit may not be covered. If you feel that a reservation of rights letter was sent incorrectly, or you have additional information which may have bearing on the case, you should write to the insurer or have your broker write to the insurer and ask for another review of the coverage question. In some rare instances, there could be a conflict of interest between you and the insurer, or it could become clear that the majority of damages claimed are the result of uncovered acts that did happen but are not insured under the policy or are not able to be insured as a matter of public policy. In those instances, the insurer must tell you and must offer you the option of a separate attorney at the insurer's expense.