Letters of Demand – Don’t sweep it under the carpet
07 October 2016

This article discussing letters of demand has been supplied by Renee Cassidy, Claims Manager at Whitbread Insurance Brokers.

If anyone believes your Owners Corporation (OC) is responsible for personal injury or property damage, and they decide to seek compensation, your OC will most likely receive a Letter of Demand (LOD).

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 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.

Letter of demand
The increasingly litigious nature of society today has seen the number of claims for property damage and personal injury grow significantly. Yet, even if the 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 case could end up in court, where legal expenses can spiral very quickly into tens of thousands of dollars.

How can insurance protect an OC?
Public Liability Insurance is designed to respond to legal demands from a third party. It can protect your OC from the significant costs associated with legal action, where the OC may be deemed liable for third party property damage or personal injury incurred on the property.

What your OC should do if a Letter of Demand is received.
To help ensure your OC’s Public Liability Insurance responds if a LOD is received, we suggest following these 4 key recommendations:

Don’t ignore it!
Ignoring even the most preposterous LOD could see your OC’s legal situation escalate quickly.

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.
An individual walked past our OC client’s fence, and tore his jacket on a raised nail. This person then proceeded to send a LOD to our client claiming $80 to replace the jacket. Our client did not feel that 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.

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, becoming 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 and should your OC’s case be unsuccessful, the OC may also be required to pay the legal expenses of the third party.
Excessive damages awarded damages awarded against the OC in court could be far greater than if the case was settled out of court.
Mental angst involvement in a court case could cause anxiety for OC members and their families.
Limited Insurance coverage The 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 it was initially received. A suitable settlement for the demand could have been negotiated, circumventing the need to go to court.

Based on this scenario, many insurers would not pay an OC’s Liability claim in full, because legal expenses could have been avoided, and insurers in general are unlikely to accept any avoidable legal costs.

Notify the appropriate parties immediately
We always recommend that you inform your OC Manager, your insurance broker, and your OC’s Public Liability insurer as soon as a LOD is received.

The benefits of early notification:
The insurer will take the situation off your OC’s hands – once your OC notifies your 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 direct involvement in the dispute.

The insurer will:

Review the LOD and advise on the next steps to take.

If required, engage legal representation to protect your OC’s interests, and liaise with the other party and their legal team who are seeking damages.

Expert advice from the start – Your OC 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.

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 OC’s insurer can also give the insurer 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.

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.

Do not respond to the letter personally and do not admit liability.
Instead of your OC responding to the LOD, your OC needs to inform your Public Liability insurer or broker.

The insurer will determine whether there is any negligence attached to the claim on the 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.

Your OC should never admit liability (fault) for the incident associated with the LOD. This could leave your OC 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 already been admitted.

Do not pay the demand
If your OC receives a LOD, refer it to the insurer who will take control on your OC’s behalf. Paying the demand could be interpreted as an admission of guilt leaving your OC vulnerable to legal action.

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