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Hidden Costs in Contracts: Legal Representation and an Insurance Gap

Kacie Kefgen

By Kacie Kefgen, MASB Assistant Director of Labor Relations and Legal Services

DashBoard, Sept. 30, 2015

As we read through school districts’ collective bargaining agreements, there are a number of potential issues we look for. Some issues can be particularly difficult to identify and have the potential to be quite costly and disruptive. One of those potentially difficult issues is district-sponsored legal representation for employees.

A teacher is sued—who’s on the hook for the legal fees?

Found in a Michigan district’s teacher contract:

Legal Representation—An employee who is a defendant in a lawsuit associated with employment with the district is entitled to be represented by district-funded counsel, unless the district, for good cause, determines that counsel should not be provided because (A) the employee acted in bad faith, (B) the employee knowingly violated the law, (C) the employee committed an intentional tort, or (D) did not act within the scope of the employee's responsibilities.

So what’s the problem with this language? Some may point out that most school districts have insurance policies to provide legal representation to employees if they are involved in a lawsuit stemming from their employment with the school. While that may be true, there may be a gap between what is promised in the teacher contract and what is covered by insurance.  

Mind the Gap!

What if, for instance, a teacher attempts to break up a scuffle between elementary students? Perhaps one of the students is injured in the scuffle and her parents sue the teacher claiming that the teacher used excessive force and hurt the child. Then the school’s insurance company concludes, for itself, that the teacher used excessive force, and it claims that the district’s insurance policy does not include legal representation for the teacher in such a case. Meanwhile, the teacher maintains that s/he should be represented by a district-funded attorney, as outlined in the contract.

The district could be stuck in a costly legal battle between the teacher and the insurance company to decide whether the teacher is entitled to representation by the teacher contract and whether the insurance company is required to pay for the representation. Meanwhile, the district also would likely be a defendant in the primary dispute over the student’s injuries. In one scenario, an arbitrator concludes that the district did indeed promise to pay the teacher’s attorney fees in such a situation, while a court decides that the insurance policy does not cover the situation—a costly gap. The district is left in the middle holding a bag full of legal bills and no choice but to dip into general fund dollars to pay them.

In all cases, the district’s legal bills could add up quickly because of a seemingly harmless contract provision that likely went unedited and unquestioned for many years of negotiations.

If you have language in your contracts that you think might lead to problems like this one, consider having your retained counsel or MASB take a look at it for you. Also, keep a look out for more examples of hidden costs in contracts in future editions of DashBoard.

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