What Nonprofit Managers Need To Know About Lawsuits E-Book

Chapter 1: Getting the facts: That key first step.

A client has just tripped over a chair and fallen down at your luncheon program for low income families. He says he is fine and just needs a ride home. What is the likelihood this will lead to a lawsuit? What should you do to protect your agency?

Also consider this: One of your employees returned from a business errand in the organization’s van. The employee told you he was involved in a minor collision. He tapped the rear end of another car at an intersection, but there was no damage and no one was hurt. The police were not called, but your employee exchanged insurance information with the other driver. Now it is almost a year later and your organization is served with a lawsuit for damage to a vehicle and injuries claimed by the driver and three passengers. You have no recollection or record of the incident. The driver named in the lawsuit no longer works for you.

Sound far-fetched? At Nonprofits Insurance Alliance, we receive at least one of these lawsuits a month. Without pictures of the cars and statements from the drivers, we are in the position of trying to prove the injured parties are exaggerating their claims without the tools we need to do so. How can you make sure this doesn’t happen in your organization?

Even with the best risk management, incidents occur at nonprofit organizations. Many of these are beyond anyone’s control. Often it is the inattention of the individual involved that results in these injuries. However, sometimes these injuries are caused by unsafe conditions or inadequate supervision at the nonprofit. Sometimes it is a combination of several factors.

What should I do?

Whatever the cause, when an incident occurs at your nonprofit, you need to take a few steps to protect your agency. In our previous examples, the folks may go home, have a warm cup of tea and feel perfectly fine. However, that is only one possible outcome. It is at least as likely these individuals could experience pain on waking the next day and, after further investigation by a physician, discover a pulled muscle, a cracked bone or some other injury. They could also connect with an unethical medical provider or attorney and concoct soft-tissue injuries that may not truly exist. You should be prepared for a claim for damages, or possibly a lawsuit.

Foremost, when an incident happens, make sure that emergency personnel are called . If emergency care is not warranted or desired, make sure the person or persons involved in the incident, however minor, have ample time to rest and collect themselves before they go about their business or leave your premises. Keep the name and phone number of the individual. If possible, you may even want to call that person in a day to see whether he or she is truly feeling well. As litigious as our society is, we still find that a little common courtesy and concern go a long way.

Once the individual has been taken care of, it is time to take care of your agency. That means briefly documenting the incident and reporting it to your insurance broker in case a claim for damages is made.

What should I document?

• Record the name, address and phone number of all persons involved in the incident, as well as the date of occurrence.
• Express concern for the individual, but do not promise to pay any damages. It is premature to determine who should pay before the incident is investigated.
• Make a list of witnesses to the incident, including names, addresses, and, most importantly, telephone numbers.
• Write a brief description of the incident and note the condition of the area at the time of the incident. (You may wish to use the Incident Report Form in Appendix B.) Be sure to note the time of day, lighting in the area, any foreign objects, etc. In cases of slip and falls, it is important to note the type of footwear the person was wearing and the condition of the floor at the time of the incident.
• Take snapshots of the area, if possible. An inexpensive camera or a cell phone camera can be a big help in these cases. If surveillance video has been taken, save that portion of the video and note the date and time it was taken.
• Keep this information on file and send a copy of the incident report to your insurance broker.

All this record keeping may seem like an excessive interruption in your busy day. However, good notes on incidents like these taken right after the incident have proven valuable in defending cases against our nonprofit members. Concise, accurate documentation can provide a powerful defense.

To assist our members, we provide an Incident Report form at the front of the insurance policy. We also have this form available on our secure member portal.

Reporting the incident.

At Nonprofits Insurance Alliance, we believe it is important for you to report all incidents to your insurance broker, who is expected to forward the information to your insurer. Besides the information you send, your broker will complete an ACORD form which is a standardized form required by insurers. Not all insurers want to have all incidents reported to them. Sometimes, they want to know about the incident only if a claim for damages has been presented. We prefer to have the information about all incidents, whether or not there exists a claim for damages, so we can determine whether an investigation is warranted. We suggest that you report all incidents to your insurance broker and let him or her determine whether to forward it to the insurer.

Most incidents will not result in lawsuits. However, many will cause a claim for damages. If you have reported an incident to your insurance broker, an insurance adjuster will probably call to ask you details about the claim. Depending on the facts and the seriousness of the claim, an insurance adjuster may make an appointment to meet with you and your staff at length. You should cooperate with the insurance adjuster’s request for information to the fullest extent possible.

Sometimes an unscrupulous attorney will call and fail to tell you they represent the injured party. The attorney may try to get information from you that you should not share with anyone but your insurer. If you have any doubts about the validity of a caller or an unannounced visitor, call NIA or your insurance broker to confirm the identity of that person before answering questions or providing any written information.

Your insurer may settle claims before a lawsuit is ever filed. Nonprofits Insurance Alliance encourages those who have been injured through the clear liability of one of our nonprofit members to present evidence of damages and a demand for settlement before suing. If the demand is in line with the damages, settlement can often be reached before either side incurs legal costs.

Despite all of our best efforts, lawsuits will inevitably be filed in certain cases. The information in the next chapters explains that process and your role in it.

Chapter 3: Yikes! I’ve been served with a lawsuit!

The first thing to remember when served with a lawsuit is, don’t panic! If you have documented all incidents properly 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 20-day or 30-day clock. In most states, the person or organization served has 30 days from the date of service to respond. While it is possible for the defense attorney to request an additional 30 days from the plaintiff attorney, the plaintiff attorney 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 them know that lawsuit papers are coming.

Your first inclination may be to talk with people in the office about the lawsuit. Don’t do it. There have been many cases where a disgruntled employee has given information on a lawsuit to the other side, which has proven to be very detrimental. And never, ever call the plaintiff or their attorney.

Mentally prepare yourself to have this lawsuit be a part of your life for a while, but resolve not to let it consume you. Establish a file in a locked cabinet and stay organized and on top of the paper flow that is sure to follow the initial lawsuit. Just as you have relegated this lawsuit to a file in your office, do your best to make it just another of the many projects in your life. It will need attention, for sure, but it should not rule you.

Some folks erroneously think that if the lawsuit is unjustified, it will be easy to get it dismissed early in the process. Consequently, they take the lawsuit process less seriously than they should. In some cases, a “summary judgment” will be granted and the plaintiff will not be entitled under the law to pursue their claim. However, these situations are rare and you should not count on this happening, no matter how ridiculous you believe the case to be.

The courts have demonstrated that they will bend over backwards to give the plaintiff every opportunity to put the case before a jury. Even if your attorney is successful at getting a case dismissed, the plaintiff may appeal the decision, which can easily add two or three years and tens of thousands of dollars to the litigation.

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. 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 damages claimed by the plaintiff against you or your organization. The judgment is as final as a verdict after a trial, and it 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. A motion to set aside the default must usually be made within six months after the notice of default was filed. These motions are granted for a very few acceptable reasons, such as a mistake, inadvertence, or excusable neglect. Failing to take prompt action on the lawsuit ,or ignorance of the lawsuit process, usually will not qualify as acceptable reasons. After a short period, a default can be set aside only if fraud is involved.

A default can be entered only after proof of service is filed with the court and the minimum time to respond has elapsed. This means that if you get a notice of a default, the lawsuit was served at some time to someone presumed to represent you or your organization. Just because the papers did not make it to the executive director or other person in charge, does not mean the lawsuit was not served and is not valid.

Every organization should designate one person to accept service of lawsuits. Instruct employees, volunteers, directors and officers 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 they can find that person. Remember, it never improves the situation to evade service of a lawsuit. It is best to establish a protocol so these important papers are delivered to the right person immediately.

The bad news for you is that your insurer may claim that a default judgment voids the policy because they did not have a chance to investigate and defend the lawsuit. Remember, insurance policies typically require the insured to notify the insurer immediately whenever 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.

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 individuals 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). Non-authorized persons, including staff, volunteers and board members, should not talk to the media.
• Do not admit wrongdoing. Keep in mind that anything anyone in a position of authority says to the media 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 do 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 the 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. You’ve 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 qualifies for defense by an insurer.

For example, if you’re served a lawsuit regarding an auto collision, your insurance broker will send it to your auto insurance company. If the incident is a slip and fall at your facility, your insurance broker will send it to whatever company provides your general liability policy.

If there is a question of whether 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 in the suit.

If your insurer determines that the policy does not cover that lawsuit, your insurer must tell you that in writing and explain exactly why the policy does not apply. When an insurer has an obligation to defend the lawsuit, the insurer will send you a letter telling you what lawyer the insurer has hired to represent you and/or your organization. Sometimes, 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 will defend the organization, but the company is making sure you understand that some of the allegations in the suit may not be covered.

These letters are often long and difficult to read. This is because the insurer must spell out exactly why it is reserving its rights. It may be that both negligent and intentional acts are alleged in the suit. There may be questions as to whether the employee or volunteer was acting in the course and scope of their relationship with the organization. Insurance typically does not cover damages awarded as a result of certain intentional acts, such as fraud, assault, intentional infliction of emotional distress, punitive damages and others. If it did, there would be no incentive for anyone to behave reasonably and responsibly. Without a reservation of rights letter, an insurance company might find itself in the position of providing coverage for an uninsurable act.

If you feel that a reservation of rights letter was sent incorrectly, or you have additional information that 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 most cases that we have seen, the case will be defended, settled if appropriate and concluded without any further reference to the reservation of rights. Nevertheless, if you are uncertain you may also wish to have your corporate attorney review the language and discuss it with you.

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 result from uncovered acts that happened but are not insured under the policy or cannot be insured as a matter of public policy. In those instances, the insurer must tell you its coverage position and may be required to offer you the option of a separate attorney at the insurer’s expense.

What are all of these papers?

When a lawsuit is served, there are two parts: a summons and a complaint. The summons is a notice to you and/or your organization that you have been sued. The complaint tells you what the suit is about and what the person suing wants. On the following four pages, we will review these two parts.

The summons:

The top paper is the summons. The summons is a very important piece of paper. The sample summons below shows:

1. who has filed the lawsuit,
2. what attorney represents that person, and
3. what court the suit will be heard in

The summons will also tell you exactly who is being served. On the bottom third of the sample summons it lists who or what is being served with this lawsuit.

4. If you are being served as an individual, it will say so. If you are being served on behalf of your organization, it will say so. If you are being served as a previously unnamed defendant, you will see language referring to “Doe” defendant, just as in John Doe.

The complaint:

The complaint is the rest of the papers you receive except for the top page (the summons). In some cases, other documents are included with the complaint. A statement of damages (usually a huge number, unrelated to the merits of the case) and a notice from the court extolling the virtues of arbitration or mediation are the most common attachments. The complaint is a description of all the ‘bad’ things you are supposed to have done to the plaintiff and what the plaintiff has suffered as a result of your actions.

A sample complaint follows with the following information highlighted: The first page of the complaint, the title page, will show

1. the name of the person or persons who are suing you,
2. the name of the attorney representing the plaintiff,
3. all of the people or entities who are being sued, and
4. what the suit is about.

Generally speaking, it is not a good idea to read the complaint right away. Most people get very upset at what the lawsuit claims to have happened. Remember, lawsuits are all written in the same manner and use the same type of language. This language has developed over the years and is consistent from lawsuit to lawsuit.

Many counties have adopted a “fill in the blank” form complaint where boxes are checked and a few paragraphs describing the particular event leading to the lawsuit are inserted in the appropriate places.

Remember that most of the language used is standardized from complaint to complaint. While this one may rant and rave about you or your organization, you will be comforted to know that all complaints rant and rave in the same fashion.

Remember that Nonprofits Insurance Alliance sees many lawsuits lodged against a wide variety of nonprofits. We are familiar with the language used in lawsuits. We understand that the claims are most likely exaggerated and do not represent your side of the story.

Yes, we know that you may, in spite of the preceding warning, decide to read the complaint.

On the second or third page, after a lot of description about what kind of an organization the plaintiff believes yours to be, a paragraph will begin with “on or about” or words to that effect, and will be followed by a date. That is the date on which the subject of the lawsuit is alleged to have occurred.

If, for example, the lawsuit is because someone ran a stop sign on January 2nd, then the complaint would refer to “on or about January 2nd.”

There is usually no cause for either alarm or rejoicing if the date cited in the lawsuit is not exactly the same date that you remember the incident happening. However, be sure to advise the attorney assigned to represent you of any discrepancies.

Chapter 5: Conclusion.

Foremost, when an incident happens, make sure that the injured party receives immediate, appropriate care. After the injured party is cared for, document the incident and report it to your insurance broker, whether you think there will be a claim or not.

Insurers cannot investigate an incident they do not know about. And, it is often very difficult to get the facts from witnesses who were there when a year or more has passed between the incident and the time the lawsuit is served.

Nonprofits Insurance Alliance often chooses to investigate incidents even if they have not yet become claims, if we think our early research will be helpful in the future handling of the claim.

At the time of an incident, many people will say, “I’m okay,” “That’s all right,” or “I’m not hurt,” and when they make those statements, they probably believe them. We have found that many of these claims turn into lawsuits and there is no one to talk to or witnesses to interview and no scene to investigate because it was never reported to us, the insurer. Your organization will be much better off if you have given notice of an incident.

Lawsuits are traumatic, time-consuming, expensive, difficult, and a fact of life. You can strengthen your position in a lawsuit by carefully documenting the situation, forwarding the lawsuit promptly to your insurance broker, and cooperating with the claims investigator and attorney by providing honest answers and prompt information. This will make those cases that turn into lawsuits much easier to defend and allow them to be managed much more successfully.

In summary, we offer a few tips:

• Make a note of how and when you were served with a summons and/or a complaint. A summons must be answered in 30 days or less depending on where it is received and by whom. Don’t dodge service. It accomplishes nothing and can create difficulties for your attorney.
• Don’t alter your records. You will want to look at your incident report to see what happened, but make no changes, additions, or deletions to any documents. Most importantly, do not dispose of any documents you think may be harmful. Someone probably knows that piece of paper exists and has a copy. You will only look foolish to the other side and dishonest to the court.
• Notify your insurance broker immediately. Make a complete copy of the lawsuit and send the original to your insurance broker and call to let them know it is in the mail. No matter how upset you are that a lawsuit was filed, ignoring it will not make it go away. Ignoring it can jeopardize your insurance coverage and even make you lose the case by default. It is absolutely critical that the response be handled correctly.
• Don’t talk about the case except with the insurer representative or the defense attorney hired to represent you and/or your organization. Never, ever call the plaintiff. Whatever caused the lawsuit has not been resolved and you will not be able to do anything about it at this point. It is extremely important not to discuss the case with others, and particularly not with the plaintiff or their attorney. Beware of discussing the lawsuit with co-workers. “Walls have ears” and you never know who is listening. There have been many cases where a disgruntled employee has given information on a lawsuit to the other side which has proven to be very detrimental.
• Do cooperate in obtaining all of the documents, records, or other information when requested by your lawyer. Speedy cooperation is essential. Be sure the originals are in a safe place and send the records exactly as they have been maintained.
• Don’t overstate or understate the facts as you see them when you talk to your insurer or your defense attorney. It is likely that your insurer and the defense attorney assigned to represent you and/or your organization will require an in-depth discussion concerning the circumstances or facts of the incident. Be sure you disclose all facts, not adding anything or leaving anything out. There is no advantage to withholding or ‘modifying’ information. In the end, the truth will come out. The one thing all defense attorneys hate is a surprise. If there is something that you know about an incident that is relevant to that incident, or even if you think it isn’t important, you must come clean and tell your attorney EVERYTHING. The worst possible case is for an attorney to be surprised on the eve of trial with a fact that changes the entire complexion of the lawsuit.
• Don’t let politics or emotions prevail over good sense. We know a lawsuit can be a blow to your organization’s ego and can jeopardize your good reputation. Your first reaction may be to want to disclose the “real facts” to the public to absolve your agency of wrongdoing. Don’t do it! When an organization does this, it can be very damaging and make it harder for your attorney to help you and to properly handle the claim. Designate one person as the spokesperson for the organization and make sure that person has been trained to work with the press.
• Resolve to do this right. This lawsuit will likely be a part of your life for a while. Resolve to take it seriously, but don’t let it consume your life. Sometimes the steps in the lawsuit process will seem cumbersome, repetitive and unnecessary. Despite the hassle, provide accurate, thorough information.