The facts
ABC Country Club decided to close its doors and stop providing services to its members. Meanwhile, the board members of ABC Country Club began discussions with another local club about the possibility of a merger. After months of negotiation the merger fell through and a number of the members decided to resign their memberships and joined other country clubs in the area. Mr. Richards, the president of ABC Country Club, allegedly told members they would have until the end of the year to rescind their resignations.
Mr. Richards attempted mergers with other local clubs, but again, they fell through. Mr. Richards and ABC Country Club board members decided to sell the property and liquidate the club’s assets netting approximately $20 million. After all debts were paid, the remaining monies from the sale went to the senior members of the club. Upon hearing of the sale, the members that had previously resigned their membership asked to have their membership reinstated.
The result
ABC Country Club refused to reinstate the members and share in the proceeds from the sale. The members filed a suit. The resigned members claimed they were entitled to some of the proceeds. The members sued for $250,000 each in compensatory damages and $300,000 each in punitive damages on counts of interference with economic relationship and fraud.
Three years later, over $250,000 in defense and indemnity expenses have been paid. The lawsuit has not been settled. Mr. Richards, board members, club members, and the funds from the sale, remain entangled in a legal battle.
The risk factors
Risk factor #1
All correspondence between the board of directors and the club’s membership should be conveyed in writing. Individual members of the board should not, without prior written consent of the board and decisions being finalized, convey any decisions or rulings to its membership.
Risk factor #2
Within the club’s bylaws there should be clearly defined procedures and timelines regarding the resignation or termination of an individual’s membership. The bylaws should also specify the procedure for reinstatement of one’s membership.
*The claim scenario is strictly documented for illustrative purposes only and provides an example of what a policy could cover. It is intended to provide a general overview of the program described. Please remember only the insurance policy can give actual terms, coverage, amounts, conditions and exclusions. Program availability and coverage are subject to individual underwriting criteria.
