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The following is an excerpt from a recent Gordon & Rees LLP article entitled California Supreme Court Holds Principal Architects Owe Duty of Care to Future Homeowners:

On July 3, the Supreme Court of California published its decision in Beacon Residential Community Assn. v. Skidmore, Owings & Merrill. In short, the court concluded that prime architects designing residential buildings owe a duty of care to future homeowners even though they do not actually build the projects themselves or exercise ultimate control over their construction.

Of importance, Beacon involved a demurrer at the trial court level meaning that, on appeal, the Supreme Court was required to accept the facts pled in the plaintiff’s amended complaint as true. This included the allegation that the Beacon project’s designers provided their services “knowing that the finished construction would be sold as condominiums.” It also was claimed that the defendants played an active role throughout the construction process, including coordinating efforts of the design and construction teams, conducting weekly site visits and inspections, recommending design revisions as needed, and monitoring compliance with design plans. For their various services, the designers were reportedly paid $5 million. The plaintiff alleged that negligent design work resulted in several defects, including extensive water infiltration, inadequate fire separations, excessive solar heat gain, structural cracks, and other safety hazards…

Although not a total loss for the design community, Beacon will have the effect of expanding architects and engineers (A&E) liability to a broader spectrum of claimants and generally keep A&E defendants in lawsuits for longer periods of time.

For an explanation of the court’s decision, including a concise summary of the affects of the ruling on Architects and Engineers, visit the original Gordon & Rees post by attorney Dion N. Cominos.

Complex precedents like this are just one of the reasons why A&Es are best served by consulting specialist brokers about their Professional Liability insurance needs. Does your current professional liability insurance policy include pre-claims assistance? How about the latitude to choose your own council in the event of of a claim? Call your local a/e ProNet Broker and get answers to these questions today.

PNN_201403_Waiver of Subrogation A Valid Defense for Architects and EngineersAn attorney is asked to defend an architect in a claim for defective design of a geothermal HVAC system, which allegedly caused an explosion and several million dollars of property damage to an owner’s manufacturing facility. He reviews the file, making notes. The plaintiff is the owner’s casualty insurer, which has paid the claim and sued the general contractor in subrogation. It’s actually the general contractor who has named the architect as a third-party defendant, seeking contribution and indemnity. All sorts of interesting defenses present themselves: statute of repose (work was completed years ago), no common law indemnity claim, no negligence…but what about the contracts for the original project?

Contained within the AIA A201 General Conditions is a boiler plate “waiver of subrogation” clause. It appears to bar subrogation claims for damages covered by insurance on the property. The owner’s carrier picked up the tab, so how can it sue in subrogation now? Are these waivers of subrogation provisions enforceable?

Since the project is in North Carolina, our inquiry starts with a 1987 North Carolina Court of Appeals decision, St. Paul Fire & Marine Insurance Company v. Freeman-White Associates, Inc. The case involves an architect who performed design services for a Charlotte, North Carolina hospital. During construction, a wing of the hospital collapsed, causing significant property damage. The hospital’s insurer paid the claim under an “all risk” policy and then sued the architect in subrogation. The agreements between the parties to the construction incorporated the AIA A201 General Conditions, including its standard waiver of subrogation clause, and the clause was applied by the trial court to dismiss the complaint against the architect under Rule 12(b)6. Unfortunately, on appeal, the court of appeals declined to enforce the waiver of subrogation provision and reversed the trial court’s dismissal.

The rationale? The appeals court held that because the contract required the architect to provide coverage for its own errors and omissions, the contract was susceptible to two interpretations: 1) the true intent of the contracting parties was that the owner would waive all claims for damages against which the owner had insured itself; or 2) the contracting parties intended for the architect to insure against its own negligence in order to negate the waiver as to losses caused by the architect’s negligence.

Not a great result for the client. However, St. Paul Fire & Marine Insurance Company v. Freeman-White Associates, Inc. is a 1987 decision. Surely there has been some better law made since then…

Waiver of Subrogation in General in Construction Contracts

“Subrogation is the substitution of [one person or entity] to the position of another, an obligee, whose claim he has satisfied…” Thus, in the insurance context, the doctrine of subrogation allows an insurer who has indemnifed its insured to step into the shoes of its insured and sue any at-fault party which may have caused the damages. The right of subrogation may arise by equitable, common law principles, or by virtue of any express assignment in the insuring agreement. The policies underlying subrogation are appealing: 1) it feels “fair” that the ultimate liability for a loss should land on the wrongdoer, not an insured’s insurer; 2) in theory, subrogation should keep insurance premiums down; and 3) parties remain incentivized to avoid mistakes. In addition, fault-based claims in the midst of construction can cause delays and increased hostility during the project. Costly litigation would ensue, the avoidance of which was one of the purposes for which the property insurance was originally obtained. Continue reading “Waiver of Subrogation: A Valid Defense for Architects and Engineers?”

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We’re especially proud of our partnership with the Society for Design Administration (SDA). Our members are well aware of the important role office administrators play in design firms, particularly when it comes to insurance matters. Today, we want to congratulate Penny Nelson, Director of Finance for Douglas Pancake Architects in Irvine, California, on passing the SDA Certified Design Firm Administrators exam! Ms. Nelson is the Orange County SDA’s Chapter President.

What is CDFA?

The SDA, the recognized leader in education for best practices in the A/E/C industry, offers a credential that recognizes your achieved administrative and management expertise, the Certified Design Firm Administrator (CDFA) designation. The CDFA credential is a voluntary certification designed to elevate the professional standards in design firm management and administration and contribute to the firm’s organizational growth and maturity through better practices in firm management. The credential comprised by the SDA’s Certification Program distinguishes and supports the roles performed by the spectrum of administrators and managers in the A/E/C firm. Furthermore, enhanced marketability and increased earning potential are just two of the many benefits CDFA certification provides.

CDFA certification recognizes an individual who has met a rigorous standard of experience and expertise in design firm management and administration and who has demonstrated their knowledge of the practice and related disciplines through a thorough examination of management and administrative competencies. This individual further adheres to the ethics and responsibilities of the profession as outlined in the SDA Code of Ethics.

Read more about the CDFA at the SDA’s website…

Last year,  we announced that a/e ProNet will pay one half of a new SDA member’s dues if that member’s insurance broker belongs to a/e ProNet… Chapters can partner with the local broker and reach out to principals and managers in their network. How about that for a good deal! Contact your local a/e ProNet broker today…

Shout-out Credit:

Alicia K. Igram, AAI, VP & Branch Rep
Design & Consulting Liability Specialist
IOA Insurance Services – Aliso Viejo, CA
Email: Alicia.Igram@ioausa.com / Phone: 949-680-1789

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The David W. Lakamp a/e Pronet scholarship deadline has been extended to June 11, 2014. Get your application in a soon as possible!

Two students, who best demonstrate strong interest in practice management, will each receive a $5,000 award. The scholarship is open to fourth year undergraduates and graduate students of architecture enrolled in a NAAB- accredited professional degree program. Submissions are reviewed by jury panel that consists members of the AIA Practice Management Knowledge Community (PMKC) and the a/e ProNet organization. Candidates must submit a copy of their transcripts, two letters of recommendation, and an essay on how they would resolve a project management dilemma.

For more information about the scholarship click here. To download the application click here .

You can also read about past scholarship winners on the blog.

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We were excited to see that AIA Florida picked up this timely article by Mark Jackson of Jackson Collinsworth Johnson, an a/e ProNet member. Hope you find it helpful, too!

There are two important contract clauses that design professionals should include with every client contract. The first clause provides protection to individuals and the second limits the firm’s liability.

Individual Protection

The first clause we recommend gives individual protection for your licensed professionals. In 2013, the State of Florida signed a law relating to design professionals known as the Fairness in Liability legislation. Beginning July 1, 2013, design firms are now able to negotiate contracts that protect their professional employees from being sued individually by their clients.

The new law grants design professional employees immunity from liability for economic damages resulting from negligence occurring during the course and scope of a professional services contact. The law does require that the design firm maintain professional liability insurance as required under the contract.

The new law also extends to individuals the protection of contractual limitation of liability clauses. This comes four years after the courts ruled that individual professional employees were not protected by limitation of liability clauses in a contract. (Florida appellate court case Witt v. La Gorce Country Club, Inc., 34 Fla.L., Weekly D1161a)

Design professionals should take advantage of the benefits of this new law. Your contracts should be amended to include language that an individual employee cannot be held liable for negligence. The law has five conditions for this protection to apply:

1. The contract is made between the design firm and the client.
2. Individual employees are not to be named as a party to the contract. All professional services contracts need to be made between the client and the business entity.
3. The design firm must maintain Professional Liability insurance, as required by contract.
4. The contract contains a prominent statement, in uppercase font that is at least five point sizes larger than the rest of the text, that an individual employee or agent may not be individually liable for negligence.
5. Any damages are solely economic in nature and the damages do not extend to personal injuries or property not subject to the contract.

To continue reading, download the PDF here…

Tired of reading article after newsletter after white paper after blog post on risk management? (We hope not! But just in case…) Here’s another option:

[youtube https://www.youtube.com/watch?v=C2ioR9X05Qo]

Longtime a/e ProNet affiliate Kent Holland of ConstructionRisk, LLC has translated his impressive catalog of resources into a series of short videos available on the ConstructionRisk.com YouTube Channel.

“If you’re involved in the construction project, whether as a contractor, a designer, or a project owner, you will get real benefit from the practical ideas, suggestions, and law presented in these videos.”

A few of the playlists available now:

J. Kent Holland is a construction lawyer located in Tysons Corner, Virginia, representing design professionals, contractors, and project owners.

Don’t forget the popcorn!

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Incredibly, even the global economic crisis hasn’t hardened the Professional Liability Insurance market for Architects and Engineers. Today, there are more insurance companies offering A&E policies than ever. And, thanks to the increasing insurance savvy of Design Professionals (particularly those utilizing the services of specialist brokers), new Professional Liability insurers are offering more in the way of risk management and pre-claims assistance, too.

You’ll find all this information and more outlined in the The Hard Market That Never Came, an analysis of the 2013 Professional Liability Insurance Survey of Carriers, in the February 2014 issue of Engineering, Inc. Continue reading “Engineering Inc. – 2013 Professional Liability Insurance Survey of Carriers”

It’s that time of year! We get to congratulate the winners of the a/e ProNet AIA David W. Lakamp Scholarship. Late last year, we announced the expansion of our long-standing scholarship to include two $5,000 awards annually. Out of a field of excellent candidates, the committee selected two especially deserving students:

Josh_Gerloff2Josh Gerloff is from Chesapeake, VA and is currently an architecture graduate student at the University of North Carolina at Charlotte. He received his undergraduate degree in Government from the University of Notre Dame.

Prior to graduate school, Gerloff worked with his family at Gerloff Painting, Inc. He also served on numerous community boards and commissions, culminating with an appointment to the Chesapeake Planning Commission. Gerloff found this planning commission experience to be most rewarding as he has strong interest in social issues and community engagement. He hopes to fuse these interests with his architectural studies.

Following graduate school, Gerloff will seek employment at an architectural firm and will pursue his NCARB registration. When he’s not studying or spending time with his wife Katie and their three children, Gerloff enjoys triathlon and playing guitar. His biggest accomplishment is finishing the 2010 Ironman Lake Placid.

* * *

Manczyk_Mark2Mark Manczyk will be completing his Bachelor of Arts in Architecture degree at the University of Kentucky in May 2014, and will be attending graduate school in the fall of 2014. Manczyk, an honors student, has actively led student organizations as Co-Vice President of the American Institute of Architecture Students (AIAS) in 2012–2013 and, at present, as Secretary for the Tau Sigma Delta (ΤΣΔ) – Honor Society in Architecture and Allied Arts.

Manczyk has gained experience at several architecture firms including Bernard Tschumi (New York City, NY) in the spring of 2013 and Centerbrook Architects (Centerbrook, CT) in the summer of 2012. Currently, he is a Research Assistant at the University of Kentucky with Gregory Luhan, Associate Dean for Research, working to design modular, energy-efficient, and low-cost workforce housing, schools, clinics, and offices.

His interests include playing acoustic guitar, painting, sketching, and biking. He is active in developing his Catholic faith. He currently leads a Men’s Group at the Newman Center Holy Spirit Parish and is a Parish Liturgy Council Student Representative.

Congratulations, gentlemen! We are proud to be able to support your pursuit of an education and career in the field of Architecture.

Those interested in more information about our scholarship can find it here. The deadline for application comes up each November.

Happy New Year, friends & followers of a/e ProNet! We thought we ‘d take a moment to congratulate our friends over at Victor O. Schinnerer–one of the leading Professional Liability insurance companies in the industry today–on the new, updated Schinnerer Risk Management Blog.

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For a number of years, Schinnerer’s Risk Management Blog has been an excellent source of up-to-date industry news. Recent posts have included:

If you’re an Architect or an Engineer or a Design Consultant, whether or not your current professional liability insurance carrier is Victor O. Schinnerer, their blog is a great place to look for answers to your everyday questions about insurance, best practices, and, of course, risk management. These referenced posts on the old blog, so be sure to check out the archive. We also encourage you to subscribe to the new WordPress blog if you find this info relevant to you and your business.

Make sure to contact your local a/e ProNet broker if you’re interested in obtaining a Professional Liability quote from Schinnerer. Have a great 2014!