By Brian L. Trotier, EVP/COO, ALIA (www.aliains.com)
(Nothing contained herein constitutes legal advice, but rather this is simply an explanation how the legal system may allow you to deal with the consequences of a frivolous claim/lawsuit)
If you have ever had to deal with a frivolous claim or lawsuit, you are not alone. Many frivolous claims or lawsuits are filed every day. If you haven’t had to deal with a frivolous claim or lawsuit yet, congratulations, but you still should read this because if you are in the real estate business long enough you will eventually “join the club”.
I get asked what you can do to avoid frivolous claims or lawsuits and the simple answer is there nothing you can do. The very definition of “frivolous” means there is no merit to the claimant’s argument and unfortunately it is not possible to avoid such attacks. Until the legal system in the United States decides to stop treating every claimant with kid gloves and actually implements some serious consequences for filing and pursuing frivolous claims, it’s open season for every crackpot client or bottom feeding attorney. The US legal system, unlike other legal systems, feels it is more important not to create barriers to filing claims or lawsuits than it is to protect society from the incredibly high cost of defending frivolous claims.
Here are a few pointers on how to deal with a frivolous claim or lawsuit:
1. Do not just ignore a claim because you believe it is frivolous. Many E&O policies offer several hours of free legal advice each year and when you first receive notice of any potential claim you should contact the law firm that provides this advice and ask for guidance.
2. Most E&O policies require you to report a potential claim even if you know it is frivolous. First, it satisfies any reporting requirement in your policy. Second, it gives the carrier a chance to help you handle the matter. Most carriers employ experienced in-house claim adjusters who can help you deal with potential claims.
3. If you receive a summons/complaint, you are being sued and you must report this to your E&O carrier IMMEDIATELY. Once you are served a clock starts running and you only have so many days to file a written response with the court. Do not wait a single day to inform your E&O carrier.
4. Follow the advice you get in order to dispose of the matter as quickly and efficiently as possible.
Here is one example of a recent case which illustrates how even the most ridiculous claim/lawsuit is handled by the US legal system. C.L. is an inspector who was sued by someone he never did an inspection for. The claimant sued C.L. because they obtained part of a copy of an inspection report and assumed C.L. was the inspector even though nothing in the partial report indicated C.L. was the actual inspector. After going through discovery, C.L.’s attorney was able to prove the report in question was not done by C.L. and that the lawsuit was filed against the wrong person. The judge dismissed the lawsuit, but did not force the claimant to pay any of the cost of defending the frivolous lawsuit. Sadly, the carrier incurred significant legal costs proving that C.L. did not write the report in question and this resulted in C.L.’s E&O premium going up.
Once a matter like this is resolved and the claim or lawsuit is over you will be frustrated and (like C.L.) you may see your insurance premium increase because the carrier incurred legal costs in resolving the matter. Here is one idea for how you may be able to seek damages from the frivolous claimant.
1. If your premium goes up due to a frivolous claim or lawsuit, you may be able to file your own lawsuit in small claims court asking the court to order the claimant to pay the difference in your insurance premium.
2. To do this, contact your local court system and request information on filing a small claims case.
3. Next, you prepare your own complaint against the original claimant asking the court to order the claimant to pay you damages equal to the premium increase caused by the frivolous claim or lawsuit.
4. If you have a court decision or something else in writing showing the claim filed against you was determined to be frivolous, attach it to the complaint.
5. To prevail, you will need to show proof your premium went up because of the frivolous claim or lawsuit and also show proof of how many years it will be before the insurance carrier will drop the claim off your record and reduce your premium back to where it was. This total will be the damages you ask the original claimant to pay.
There is no guarantee the court will find in your favor, but unless you try you will be forced to pay higher premiums for several years for having to prove you did nothing wrong. By going after the party responsible for the premium increase, you can start sending a signal to claimants everywhere that there is a cost incurred for filing frivolous claims or lawsuits. Good luck and happy hunting.
This article is sponsored by ALIA E&O (www.aliains.com). ALIA goes beyond your typical E&O, as a broker they shop the market to find the right policy for you at the best price possible. ALIA specializes in past claims history placement. So if you have a history of claims on your record and are having problems finding insurance, ALIA can get you covered. Call them today at (800) 882-4410