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July 29, 2005
Should Managers Give Legal Advice?
A reader sent me this message: "I've lived in condo associations for many years and am well aware of their problems. Something that I notice frequently and a problem we currently have are associations who have no legal representation, never get legal advice, BUT RELY on management companies; who often times take advantage of their ignorance. If you question this, board members often say they don't need legal advice because they have D&O coverage... so alot of times they make their own rules. I don't know if the D&O policy always covers them if the fail to follow thru with due diligence, which would mean seeking legal advice.
What are your thoughts on this?"
Speaking from my experience in California, but believing it most likely to be endemic to management-associations relationships elsewhere as well, I see that some managers are wanna-be lawyers and take things too far, give advice and get the association into trouble, and sometimes they even look to the attorney to get them out of hot water gracefully. But in other cases I have managers ask me how to get the associations to seek legal advice when they need it. It's not uncommon for a board to say to a manager - why don't you answer that question for us, that's why we hired you, because you are certified and are supposed to have training in the legal aspects of associations. Many board members treat the problems before the board from a personal perspective and want to avoid spending money for legal advice - especially the penny pinchers.
For starters, related to the question at hand, any board member who says they don't need legal advice because they have D&O coverage (which for those who don't know it is Directors and Officers Liability Insurance coverage, which provides protection from lawsuits based on board actions or inaction) has a problematic attitude. The coverage is not a substitute for getting legal advice. In fact, any board member who has been sued with or without the Association as a companion defendant knows that being involved in a lawsuit is no picnic. Dedicating hours and hours to depositions, answering discovery motions, missing work for appearances, appearances, appearances, mediations, suffering sleepless nights and having to appear in court proceedings is frustrating at best. Preventive legal advice often costs less than $500 - on the other hand, defending a lawsuit against the Association generally requires payment of a deductible of at least $5,000, and then Board members pay the high price of time and energy - and if there is any action by a Director that takes them out of the "good faith" category and puts them into the "willfull and intentional conduct " category that Director might find themselves billed for the costs of the defense of the legal action. Insurance companies that take on the defenses of the Association usually issue a "reservation of rights" letter that says they reserve the right to come back and pursue collection of the costs spent to defend from the Association or any of the Board members if the actions of the Board or any Director are found to be intentional or willful conduct rather than negligence, or if the event turns out to be one not covered under the policy.
Managers can learn about the law, and freely quote statutes, articles written by lawyers, and even cases to the Boards. However, when a manager starts to analyze a problem with legal ramifications and interpret how the law or a case might apply in a certain situation, he or she is stepping over the line. And a board that expects this of a manager is asking too much.
That's what I think about it.
Posted by Beth Grimm at July 29, 2005 9:47 PM