If a third party believe your Owners Corporation are responsible for personal injury or property damage, and they decide to seek compensation, the Owners Corporation will most likely receive a Letter of Demand.
Take it from us, no matter how far-fetched the claim seems, whether you believe it happened or not, never ignore it! Renee Cassidy – Whitbread Claims Manager explains…
What is a Letter of Demand?
“Also known as a solicitor letter, a Letter of Demand (LOD) is a formal notice demanding that the person to whom the letter is addressed perform an alleged legal obligation such as rectifying some identified problem, paying a sum of money or acting on a contractual commitment.
Most demand letters will include a deadline for action, and are often used to prompt payment, avoiding expensive litigation.
A demand letter often contains a "threat" that if not adhered to, the next communication between the parties will be through a court of law in the form of formal legal action.” - Duhaime.org Legal Dictionary.
In summary, a LOD is a demand of payment for damages or injury arising from an event involving the person or entity to whom the letter is addressed.
Why would your OC receive a Letter of Demand?
Your OC will likely receive a LOD if:
- Another party alleges your OC is legally responsible for any event that sees them incur property damage or injury; and
- compensation is sought.
The increasingly litigious nature of society today has seen the number of claims for property damage and personal injury grow significantly. It is important to note that even if an alleged claim appears ridiculous or unfounded at first glance, a LOD is something to be taken seriously.
If your OC fails to address the issue early, the OC could find itself in court, where legal expenses can spiral very quickly into tens of thousands of dollars.
How can insurance protect your OC?
Public Liability Insurance is designed to respond to legal demands from a third party.
Public Liability Insurance within a Strata Insurance policy can protect your OC from the significant costs associated with legal action, where your OC may be deemed liable for third party property damage or personal injury incurred on the property.
What should the OC do if it receives a Letter of Demand?
To help ensure your OC’s Public Liability Insurance responds if you receive a LOD, we suggest following these 4 key recommendations:
1. Don’t ignore it!
Ignoring even the most preposterous sounding LOD could see your OC’s legal situation quickly escalate.
Over time I have seen some interesting claims come across my desk, and yes, even the most outrageous ones have been awarded with damages - take this example:
Damages sought for a torn jacket.
A member of the public walked past our client’s fence, and tore their jacket on a raised nail. This person then proceeded to send a LOD to our client claiming $200 to replace the jacket. Our client did not feel they were responsible for these costs, and did not respond to the LOD.
Unfortunately, as the LOD was not addressed in the first instance, the case ended up going to court. The claimant was subsequently awarded with $1200 in damages which our client was required to pay, along with the associated legal expenses incurred by both parties.
Often we find that people who receive a LOD sit tight hoping the claim will go away, but generally, ignoring a LOD only acts to intensify the problem.
What can happen if the LOD is ignored?
If the issue at hand is not dealt with, your OC is likely to be issued with formal legal action where the case may go to court. The issue then becomes a whole lot bigger than it ever needed to be.
If a case goes to court, there are a number of avoidable consequences that could arise:
- Legal costs – a court case will inevitably incur legal expenses. Should your OC’s case be unsuccessful, it may also be required to pay the legal expenses of the third party.
- Excessive damages awarded – damages awarded against your OC in court could be far greater than if the case was settled out of court.
- Mental angst – involvement in a court case can cause anxiety for OC committee members, owners and their families.
- Limited Insurance coverage – Your OC’s Public Liability insurer may not cover the damages and legal expenses in full, particularly if there is a delay in notifying the matter to the insurer.
In the insurer’s eyes, the huge costs associated with a case being heard in court could have been significantly less if the LOD was dealt with when initially received. A suitable settlement for the demand could have been negotiated, circumventing the need to go to court.
Based on the jacket scenario, many insurers would not pay your Liability claim in full. The legal expenses could have been avoided, and insurers in general are unlikely to accept any avoidable legal costs.
2. Tell your insurer or insurance broker immediately.
We always recommend that the OC inform its' Public Liability insurer or insurance broker as soon as a LOD is received.
Benefits of early notification:
a) The insurer will take the situation off your hands – once the OC notifies the Public Liability insurer, the insurer will generally take care of the whole issue from the start on your OC’s behalf, removing the need for your direct involvement in the dispute.
The insurer will:
- Review the LOD and advise on next steps.
- If required, engage legal representation to protect the OC’s interests, and liaise with the other party and their legal team who are seeking damages.
b) Expert advice from the start – The insurer will know the best way to settle the claim i.e. whether it will be more beneficial to settle a claim out of court or not. They will be aware of win/loss trends in court for similar cases, and will make an informed decision on how to achieve the best and least costly outcome for the claim.
c) Settlement out of court - The insurer will likely seek to settle the claim as soon as possible to avoid formal court proceedings.
Early LOD notification to your insurer can also give them the opportunity to look at alternative ways to resolve the LOD, or share the cost of the damages with another party. In the case of the torn jacket for example, the home and contents insurer of the person seeking damages could have paid the claim.
d) Legal expenses covered by insurance – Public Liability Insurance can cover your OC’s legal expenses associated with the claim for damages, up to the limit defined in the policy.
3. Do not respond to the letter personally, and do not admit liability.
- Instead of personally responding to the LOD, inform the OC's Public Liability insurer or Insurance broker. The insurer will determine whether there is any negligence attached to the claim on your OC’s part. There in fact may be no legitimate claim, in which case they will work to have the matter dismissed. The insurer will then respond to the letter appropriately on your OC’s behalf.
- The OC should never admit liability (fault) for the incident associated with the LOD. This could leave you open to legal action for damages, and prejudice the insurer’s position. It could be almost impossible to argue your OC’s case if guilt has been admitted.
4. Do not pay the demand
If your OC receives a LOD, refer it to the insurer who will take control on the OC’s behalf. Paying the demand could be interpreted as an admission of guilt, leaving the OC open to legal action.
For further advice regarding Letters of Demand, contact Whitbread Insurance Brokers on 1300 424 627.
This insight article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 Licence Number: 229092 trading as Whitbread Insurance Brokers for further information or refer to our website.