Professional liability insurance for architects and engineers.

Contracts

By on Aug 1, 2017 in All Topics, Contracts, Newsletters |

© 2017, by J. Kent Holland Introduction The American Institute of Architects (AIA), on April 27, issued the 2017 update to the AIA B101™ “Standard Form of Agreement Between Owner and Architect.”  There are a number of tweaks, refinements, improvements – and even a few significant changes.  Eighteen months from the date AIA published the 2017 document, the license to use the current 2007 edition will terminate.  This is not a major revision.  But from a design professional’s point of view, there are a number of improvements that will make it worthwhile to begin using this new form sooner rather than later. An easy way to quickly see the changes is to download from the AIA website the “2007/2017 Comparative,” which is a redline showing what has been added and what has been deleted. In this article, we highlight and explain some of the key changes, including: Architect represents that it is either licensed in the jurisdiction where the project is located, or in the alternative, “shall cause its services to be performed by appropriately licensed design professionals.”   But see the discussion below as to whether an unlicensed firm can meet state licensing requirements by having licensed individuals perform the professional services (§2.1). The insurance section of the agreement has been beefed up to include a more detailed description of insurance in the B101, and there is a new detailed insurance and bond exhibit that can be attached to the owner/contractor agreements such as A201 (Document A102 – 2017 Exhibit A). And insurance is required to be maintained by the Architect for a minimum of one year following Substantial Completion (§2.5); New sustainable project exhibit (AIA E 204™-2017). Sustainable project services can be added as a Supplemental Service under Section 4.1. This exhibit eliminates the need to have a sustainable project version of each contract document. The requirement that the architect discuss with the owner the feasibility of incorporating environmentally responsible design approaches has been deleted basic Agreement from (§3.2.3), but a requirement that the architect consider sustainable design alternatives is added (§3.2.5.1); Reviewing contractor requests for substitutions will be paid for as an additional service (§3.5.2.3 and 3.5.3.3); Additional Services identified at the time of agreement now are...

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By on Jun 29, 2016 in All Topics, Contracts, Newsletters |

By Mark E. Jackson, JCJ Insurance Agency It is extremely important for design firms to have a signed contract before providing professional services. A written contract provides an opportunity to set expectations and allows the parties to align themselves for a successful project. Working without a contract is like building without a blueprint. Contracts are very important for all projects; whether big or small, and whether you are working with a new client, long-term client, or sub-consultant. There are numerous advantages to having a signed contract. With conditions such as scope of services, payment provisions, indemnity obligations, standard of care, and limitation of liability, a contract provides a guide for how the project will proceed and outlines the responsibilities of each party. In the event of a disagreement or dispute, the contract is the first source to determine what each party agreed to do. If there is no contract, it can become a matter of “he said/she said” if a dispute arises. Despite the advantages of having a contract, there are times when a design firm provides services without one. For instance, an existing client has a small project and needs a quick response and no one thinks to get a signed contract. Even a small project can have claims. Regardless of the size of the project, you should have a signed contract. Some firms do not use a contract because they have a long-term relationship with the owner or subconsultant. Their opinion is that they have worked with the party for many years and have never had a dispute and, therefore, they do not need a contract. It is great to have strong, long-term relationships, but that does not guarantee there will not be a dispute on the next project. Contracts are designed to protect both parties, not just the design firm. For long-terms relationships, a fair and well-balanced contract should be easy to negotiate. Sometimes, a firm may begin work on the design services while still negotiating the contract. It is important to not forget about the unsigned contract. Negotiations need to continue and be finalized before the construction documents phase of the project is completed. You do not want to have the project complete and final...

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By on Feb 9, 2016 in All Topics, Claims, Contracts, Newsletters |

By Mark E. Jackson, JCJ Insurance Agency Most contracts between a design professional and their client or subconsultant contain an Indemnity clause. An Indemnity clause may include any, or all three, of the following obligations: (I) indemnify; (II) hold harmless; and (III) duty to defend. “Indemnify” means to reimburse your client following a claim. “Hold Harmless” may have several meanings; however, it is most often understood to protect the client against harm from suits by a third party or yourself. “Duty to Defend” means to pay the client’s legal expenses as the client defends itself against a third party claim. We recommend that a duty to defend clause be removed from a contract. If you agree to “defend” your client, you may incur your client’s legal expenses as the client defends itself against a third party claim. Attorney’s fees and costs accrue from the first day a claim is made against them. In essence, the client can hire an attorney of their choice and send you the monthly invoice. Your obligation to pay these defense costs is based on your contractual commitment, not common law. Most likely, your professional liability policy’s contractual liability exclusion will not provide coverage for your client’s defense costs, leaving your firm to pay for the client’s legal fees. Professional liability insurance covers claims caused by the design professional’s negligence. Your negligence must be determined before the policy will cover costs to defend other parties. A court case in California illustrates the importance of not agreeing to defend your client. In UDC-Universal Development, L.P. v. CH2M Hill, a condominium homeowners’ association brought suit against UDC, the developer. UDC then cross-complained against its design professional, CH2M Hill, based on an indemnity provision in their contract. The UDC jury returned with a finding of no negligence and no breach of contract by CH2M Hill. Therefore, CH2M Hill had no duty to indemnify UDC. However, the court ruled that CH2M Hill still had a duty to defend UDC and pay UDC’s defense costs in the suit brought by the condo association. The language of the indemnity provision in CH2M Hill’s contract explicitly called for CH2M Hill to defend UDC from “any claim or demand”. Therefore, CH2M Hill was...

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By on May 29, 2015 in All Topics, Contracts, Newsletters |

By Bo Sutton, Florida Board Certified Construction Attorney and Partner with Railey Harding + Allen | PA You are most likely familiar with the term “Statute of Limitations” and may even know it is four years long. There is more to it than that. In Florida we have a “Statute of Limitations” and a “Statute of Repose”. These two different but similar concepts provide deadlines by which a construction-based lawsuit must be filed. The Statute of Limitations imposes a four year deadline to file a lawsuit, and is found in §95.11(3)(c), Fla. Stat. The Statute of Limitations usually involves “patent” claims related to design, planning, or construction of an improvement to real property. The term “patent” generally means easily recognizable, obvious or should have been discovered with the exercise of due diligence. The four year deadline to file suit begins to run on the last of the following four triggers to occur: 1. Actual possession by the owner. 2. The date of the issuance of a certificate of occupancy 3. The date of abandonment of construction, if not completed 4. The date of completion or termination of the contract between the engineer(s), architect, and/or prime contractor. The Statute of Repose is a ten year window in which to file a lawsuit, and is also found in §95.11(3)(c), Fla. Stat. The Statute of Repose usually involves “latent” (or hidden) claims related to design, planning, or construction of an improvement to real property. The term “latent” generally means not yet developed or manifest; hidden; or concealed from discovery. The ten year deadline also begins to run on the last of same four triggers to occur as the Statute of Limitations. Different than the Statute of Limitations, the Statute of Repose is often referred to as the “death knell” of claims. It quite literally cuts off someone’s right to file a construction-related lawsuit, no matter what, even if the claim has not accrued yet, i.e. been discovered. Whereas, the Statute of Limitations requires a claim be asserted within four years of its discovery. Should the Statute of Repose expire before the Statute of Limitations, the Statute of Repose trumps, and the lawsuit is forever barred. You may ask, “what if one of...

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By on Mar 31, 2015 in All Topics, Contracts, Newsletters |

by David A. Ericksen, Esq. In the world of claims-related contract clauses for design professional agreements, the indemnity and defense clauses get all the attention. However, lurking in the shadow of the indemnity clause is a menacing cousin with potentially even greater and more frequent impact and risk: the prevailing party attorneys’ fee clause. Both clauses share the common risk that they are often not covered by professional liability insurance because each represents a contractually-assumed liability which would not exist in the absence of the contract. The indemnity clause draws the far greater attention because that obligation and exposure often arises during the claim by way of the defense obligation, as opposed to the attorneys’ fees clause which ultimately comes into play definitively only after a final judgment. Moreover, many design professionals (and especially their CFOs) are attracted to the prevailing fees clause as a means of effectively collecting unpaid fees. Without such a clause, they worry that the expense of pursuing collection of unpaid fees will eat up much of the ultimate recovery. Accordingly, it has some initial positive appeal. However, that appeal is limited in perspective and overlooks the far greater potential negative impact of the prevailing party attorneys’ fees clause in the context of a professional liability claim which is the all too common response to even justified actions to recover unpaid fees. As opposed to the indemnity and defense obligation, the prevailing party attorneys’ fees clause will apply far more frequently. The indemnity and defense clause applies only where the client itself is facing a third-party claim. By contrast, the prevailing party attorneys’ fees clause will generally apply to every client dispute, regardless if third parties are involved. Since the majority of claims against design professionals come from the project client, that makes it far more likely and relevant. Moreover, where professional liability issues are involved in the dispute, the presence of the clause may actually dilute the design professional’s fiscal advantage. Specifically, absent the perceived panacea of the prevailing party attorneys’ fees clause, design professionals frequently hold a superior financial advantage during claims by virtue of their insurance which will fund defense costs as compared to the client claimant which is often left to...

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By on Dec 16, 2014 in All Topics, Contracts, Newsletters |

By Mark E. Jackson and Erin L. Johnson Design Professionals are expected to meet a standard of care when providing professional services. This standard of care, similar to that imposed on doctors, lawyers and other professionals, requires them to provide professional services within their area of expertise by exercising the same care, skill and diligence as a person in that profession would ordinarily exercise under similar circumstances. Thus, an architect or engineer can be held liable where he fails to exercise such care. Courts will always default to the traditional standard of care; however, we recommend that your contracts include a clause that defines the standard of care to which you will perform. A reasonable clause establishing the standard of care is the following: “The Design Professional will perform its services using that degree of care and skill ordinarily exercised under similar conditions by professional consultants practicing in the same field at the same time in the same or similar locality. Design Professional shall perform its services as expeditiously as is consistent with the professional skill and care and the orderly progress of the Project.” Unless the contract between the design professional and the client states otherwise, the design professional is not held to a standard of perfection by the courts. With the contract language above, only if you breach this normal standard of care are you deemed to be ‘negligent.’ Your client hired you because you are good at what you do. The client knows this; that is why they hired you. You do not have to contractually guarantee that you are perfect or better than any other firm out there. Sometimes it can be challenging to meet a client’s expectations and some clients believe that your plans should be perfect. It is not reasonable to expect perfection in design plans. Unforeseen conditions, changing criteria, and differing code interpretations are to be expected. On any given project, there will be some errors and omissions in plans and specifications. Some of these errors and omissions may cause the owner or the contractor to incur additional costs in completing the job. That does not necessarily mean the owner can recover these extra costs from the design professional. Not every mistake,...

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