Newsletter Archives - Page 6 of 7

FAQ Arising out of Contract Negotiations

By Lynda

Contract negotiations can be tough, and this is especially true for Architects and Engineers (A/Es). When an A/E is hired by an Owner who lacks prior experience with the nuances of a design professional’s insurance policies, or when an A/E is hired by a contractor (rather than by another design professional), misconceptions and poorly worded Insurance Requirements can fuel adversity in the negotiation process.

The easiest way to avoid deadlock is for the A/E to ask questions of their insurance brokers in advance, thus preparing themselves to educate the other interested parties about the realities of an A/Es insurance coverage. Some frequently asked questions which arise in these negotiations are:

The Owner/Contractor wants to be added to my Professional Liability policy as an Additional Insured. Why can’t I add Additional Insureds to my Professional Liability (E&O) policy?

“A common misunderstanding about E&O insurance involves a client’s desire to be added as an additional insured and to gain a defense through the E&O policy. A/Es cannot add additional insureds on their E&O policies because the other entities are not providing services on behalf of the firm. E&O insurers will not provide this coverage, thus a contractual obligation to do so becomes an impossible situation for the A/E. E&O policies typically also have an ‘insured versus insured’ exclusion in which there is no coverage for claims between insureds. If a client became an insured under the E&O policy, the A/E would not be covered for the client’s claim.”

What does indemnification mean?

“To ‘indemnify’ does not mean that a claimant can profit from the A/E’s errors or negligence – it means that the claimant should be restored to the position they were in prior to the loss; they should be ‘made whole.’ As an example, if an A/E failed to specify interior doors on a new office building, the owner/client would not get ‘free’ doors as damages, but would instead be indemnified for additional expenses caused by adding the doors after the bidding process (e.g. additional shipping, extra installation charges, increased cost of the materials ordered at the later date, etc.).”

The Owner doesn’t want there to be a Contractual Liability Exclusion in my Professional Liability policy. What is a Contractual Liability Exclusion and does my policy have one?

“Yes, E&O policies also contain a ‘contractual liability’ exclusion which will not cover liability assumed by contract unless liability would exist absent the contractual undertaking.This exclusion is meant to protect the A/E from overextending themselves in an effort to protect a client.

“It is worth noting here that an Architect or Engineer does not have corporate protection (no ‘corporate veil’) from personal liability arising out of the performance of professional services. When considering the severe risks they may be assuming when providing design services, it is no wonder that the Architects and Engineers take contract negotiation and insurance coverages very seriously.”

Portions of these answers have been excerpted from one of our ProNet Guest Essays, this one titled Architects’ and Engineers’ Insurance — What does it cover? The essay, authored by a/e ProNet Member Diane Hoskins of Wortham Insurance & Risk Management, goes on to answer several other FAQs. Download the full PDF version here.

How to Choose a Professional Liability Insurance Broker

By Lynda

Recently, Bizjournals.com published an article on How to choose an Architect. The author stressed that the hunt for the right architect should include obtaining recommendations from friends and colleagues, calling a potential architect’s references, and studying his or her previous projects to ascertain quality and sustainability.

This process isn’t news to architects. Every job bid opens an architect’s firm and history to scrutiny, and that’s all part of an owner’s due diligence. What architects and engineers might not consider is that this logical due diligence should extend to them in the selection of their own insurance broker(s).

Remember, “Not every attorney can deal with the problems you are likely to find yourself faced with in professional practice; not every doctor can perform heart surgery; not every insurance broker can deliver the professional liability loss prevention and insurance services you need. Knowing this, it would seem to make sense for you to spend a certain amount of time searching for a broker capable of responding effectively to the unique requirements of your firm.”

a/e ProNet has put together a guide to finding the best specialist insurance broker for your design firm. Authored by David Lakamp, the founder of a/e ProNet, this guide addresses the qualities and qualifications you should require of the broker handling something as important as your Professional Liability policy. The following is an excerpt from our ProNet Practice Note titled How to Select a Professional Liability Insurance Broker:

Your professional liability insurance broker can deliver services of great value. This is as it should be, for you are paying for those services. Carefully selected and advantageously used, your broker can be as important to the management of your practice as your accountant or your attorney. Poorly selected and ill-equipped to advise you on the risks of professional practice, your broker may add little more of value to what you do than the cost of a few postage stamps at renewal time. The choice is yours.

There are many people in the insurance business, but finding the one broker best for you can be somewhat problematic. For one thing, your broker can be of real help to you only if he or she has a comprehensive understanding of what it is you are all about. Not all do. For another, the most valuable services your broker can deliver require an investment of time and resources few are prepared to make. Fortunately, there are knowledgeable brokers throughout the country who have made that investment. Your challenge is to find one you can rely on with confidence.

What a Good Broker Can Do For You

Your broker, first and foremost, is your advocate in the professional liability insurance marketplace. A good broker will know what the markets are doing, who the underwriters are, what they are looking for, and how to present your firm in the best possible light. This requires a thoroughgoing knowledge of the applications for insurance and a clear understanding of what the questions really mean, how the information being requested is likely to be interpreted, and how that information can best be communicated to the underwriters. The cost of your insurance will depend on this knowledge and on the skill and attention to detail with which it is utilized on your behalf.

A skilled professional liability insurance broker will be experienced in dealing with the underwriters in both hard and soft insurance markets. Today’s promises and prices may be real, or they may be of fleeting value. To evaluate the differences, you need competent, independent advice from a broker who is capable of a long look down the road ahead. Experienced brokers have been down this road before, and the value of the advice you receive as you seek to sort out the trade-offs between coverage options, company services, and premium dollars depends on that experience.

Other valuable questions answered by this ProNet Practice Note:

Why is it important to choose a specialist insurance broker?
How will I know a specialist insurance broker when I see one?
Where can I get good recommendations for specialist brokers in my area?
When I purchase insurance, why shouldn’t price be the bottom line?
What is the difference between an independent insurance broker and an insurance agent?
What questions should I ask an insurance broker to make certain he or she fits this criteria and will offer the best, specialized service to my architecture or engineering firm?

We invite you to download the full-length PDF version of this ProNet Practice Note here. For additional resources like this one, visit our website. And as always, the easiest way to find a specialist insurance broker for your firm is to get in touch with your local a/e ProNet Broker.

Construction Administration Liability Risk Avoidance

By Lynda

So, your architecture firm is preparing to sign a contract on a new project. You’ve reviewed the wording with your insurance broker and attorney. You feel good about the language, the limitation of liability, and the scope of services outlined therein. (And you feel even better about the fees you’ll be collecting along the way!) But before you scribble your name on the dotted line, it is important to remember that the black and white words in the contract only go so far.

The signed contract is only the first (if the most major) verifiable communication between the interested parties: Architect and Owner. As the project progresses, you’ll be communicating with the owner many more times, not only for changes and modifications to the design, but depending on the scope of your responsibility when you visit the job site, you may be keeping the owner apprised of progress. More importantly, you may be alerting the owner to problems!

Stepping outside your scope when it comes to construction administration is a risk and may leave your firm vulnerable to claims. Likewise, dealing directly with contractors without remembering your relationship to the owner (“the law will treat the architect as the owner’s agent”) is also risky. In his newsletter titled Construction Administration Liability Risk Avoidance, William L. Coggshall of Archer Norris covers some of the steps an architect can take to manage these risks.

The following is an excerpt of the aforementioned newsletter published in February of 2010. For access to the full-length PDF version of this newsletter, please visit our website.

Professional liability claims against architects generally fall into two different categories. The first type of claim is errors or omissions in the architect’s design drawings and/or specifications. The second type of claim is that the architect failed to properly perform its construction administration services pursuant to the generally accepted standard of care in the industry. Of course, there are instances where both types of claims are alleged.

The new AIA Standard Form Agreement between Owner and Architect (B101-207) describes construction administration services as ‘Construction Phase Services.’ An understanding of the nuances of these services and how claimants view the role of the architect is a key to educate architects (also applies to engineers and land surveyors) and to better equip them to avoid professional liability claims.

While the term ‘construction administration services/construction phase services’ encompasses a variety of services by the architect (i.e. evaluations of work, certificates for payment, submittals, changes in work, and project completion), the focus of this article will be on the architect’s construction observation services (described in the AIA documents as ‘Evaluations of the Work’). The intent is to give the architect an understanding of how to effectively handle their construction administration site observations in such a manner in order to help protect the professional from construction administration services liability claims, or at a minimum, to have the appropriate factual defenses to such a claim should a claim be made by the project owner.

The three pillars of properly executing the design professional’s construction administration site observation services can be summed up as the ‘Three C’s’ – Control, Competence, and Communication.

Access the full-length PDF version of the newsletter here.

About the Author: William L. Coggshall is a litigator with the Archer Norris professional liability and construction practice groups, specializing in the representation of architects and engineers in complex commercial litigation. The lawyers in our Design Professionals Liability practice group provide advice and litigation support to architects, engineers and other design professionals.

Newsletter provided by a/e ProNet Member Melissa Roberts of Euclid Insurance Agencies.

This article is intended to provide Archer Norris clients and contacts with general information. The content of this publication is for informational purposes only. Neither this publication nor its authors are rendering legal or other professional advice or opinions on specific facts or matters. No attorney-client relationship is created by this advisory, nor by any response to the information herein, unless and until a conflicts review has been conducted by Archer Norris, and a written agreement containing all terms of representation has been signed.
Copyright © 2010, Archer Norris, PLC.
All rights reserved. Archer Norris grants its clients and contacts permission to forward this publication to third parties in its entirety and without alteration or modification. You may also reproduce this material for your own personal use and for non-commercial distribution. All copies must include the above copyright notice. Please do not replicate, or post on your website, without our express written permission. Any rights not granted in this disclaimer are expressly reserved. Attorney Advertising. Prior results do not guarantee a similar outcome.

Document Retention and Disposition

By Lynda

Emails. Every work-day, we read, write, and respond to dozens of them. Some are no longer than a single sentence, but that sentence may turn out to be a vital one, especially in the event of a claim. Today, expectations for document retention are higher than ever, and the penalties for failing to meet those expectations in the event of litigation are correspondingly severe.

Knowing what you can (and must!) do with your electronic documents is important. We hope the following excerpt from the December issue of ProNetwork News, Document Retention and Disposition: A Key Element of a Design Professional Quality Control Manual, will answer a few of your questions to this end:

Excerpted from “Guidelines for Developing Your Firm’s Quality Control Manual” by Jacqueline Pons-Bunney and Peter Stacy of Weil & Drage, APC of CA, NV and AZ

Electronic Documents

As we increasingly function in virtual or paperless environments, the retention of electronic information has become a hot topic. Courts have imposed damage awards and penalties on companies that have stalled in discovery or failed to maintain and/or purged such information in anticipation of litigation. Further, there are regulatory and contractual requirements that make an electronic document policy a must.

With the passage of document tampering and destruction provisions of the Sarbanes-Oxley Act and recent amendments to the Federal Rules of Civil Procedure, every company is required to have someone with knowledge of the storage and retrievability of electronic records.

Emails in particular are extremely important in litigation discovery, but please note that they are not the only electronic files in your firm. You will have to apply your e-document policy to Internet downloads, instant messaging, text messages, Websites, e-faxes and on-line bulletin board postings. They all need to be retained in some format/location for generally the same length of time as hard copy documents, and you will need to address retention, destruction, system requirements and storage capabilities, monitoring and enforcement.

Here are some basic steps towards formulating an e-document policy:

Consult with your IT staff or outside firm about current system capacities and procedures.
Consider volume, usage, existing archiving (locally and system-wide) and time expended on existing and potential procedures.
Review both legal/regulatory and contractual requirements.
Establish procedures for purging emails from local hard drives, the company’s system and separate servers.
Address implementation (automatic v. manual) and enforcement.

Remember that the policy with respect to the destruction of e-documents, just like hard copies, must be suspended once there has been a notification of litigation or if it is reasonably anticipated.

It is important to consult with legal counsel, and in the case of e-documents, with an IT expert, to determine the scope and content of document retention and disposal policies and procedures. Then, tailor them to your employees, your clients and your fields of practice. The risks and costs of failing to address the retention of both hard copy and electronic information are too great to be ignored.

The full-length PDF version of this newsletter includes many more helpful tips.

ProNetwork News is the latest value-added resource produced by a/e ProNet. Each monthly edition includes an informative and timely article relevant to the design industry and authored by an industry expert. Contact your local a/e ProNet broker for early access to these excellent newsletters.

Don’t Delay! Report That Potential Claim Today!

By Lynda

A Professional Liability claim is triggered by a demand for money or services. Once you receive such a demand, it’s easy enough to call your broker and report the claim. But what about reporting a situation that could give rise to a claim?

Say you’re standing on a job site, eyes wide, jaw hanging open, because you see that something isn’t right. You expect that the situation you see before you could (likely, will!) give rise to a claim, but you can’t be certain. Nor can you be sure that the accident/flaw/behavior/error be held against your firm, specifically. And maybe it’s fixable in the meantime. What should you do?

It is in the best interest of your firm to call to your broker anyway. Report the potential claim.

The following is an excerpt from our ProNet Practice Note entitled Reporting Claims and Potential Claims Under Professional Liability Insurance Policies (2010):

Early reporting has many rewards. Let’s look at an actual situation: An architect called his insurance broker to tell her that a one-ton balcony collapsed adjacent to a recreational pool area. The broker immediately notified the insurance company, who put the design firm in contact with a lawyer to start gathering information and to remind the principal of appropriate responses during the crisis. The insurer then hired a forensic engineering firm, all before the architect even pulled into the parking lot!

In addition, the broker offered her client tips on good public-relations skills when facing the media—still during their drive to the site. The architect was prepared with an alternate solution when his client wanted to sweep up and remove the debris, thereby erasing a critical part of the story should a claim be made later.

Reporting a circumstance or claim should begin your access to the power of your insurer, including its expertise, network of consultants and attorneys, and financial resources. You will not only get valuable assistance with the loss or possible loss, but you also often avoid making a bad situation worse.

What if our architect had told his client, “Don’t worry, I’ll take care of it” before his negligence was established, thereby possibly accepting financial risk without insurance coverage? Every claims adjuster has sad stories like this to tell. This is most common when a design firm receives a subpoena for testimony before being made a party to the action. Feeling they are fulfilling their civic obligation, they freely discuss matters with opposing counsel in what they may later consider an unwise fashion after they are joined in the claim and find that their casual, on-the-record comments harm their own case. Early advice from the claim adjuster can be invaluable.

Even if, later on, this policyholder discontinues their insurance or purchases coverage or options that are less favorable than they currently have, this claim will be covered under the terms and conditions of the policy in place on the date the circumstance was reported to the insurance company.

Even if you are not obligated to report a circumstance according to your policy requirements, you may still report it. By doing so, you will have more options to choose from at your next renewal. You may not ultimately decide to switch to a different insurance company, but you should have the freedom to do so. Unless the matter is reported, you are not free to consider other insurers, lest a claim arise with the new insurer from an unreported circumstance of which you were previously aware.

Visit the a/e ProNet website for additional information on this topic as well as many others. A full library of ProNet Practice Notes are available for free download.

CCM+S Newsletter: A Dangerous Precedent

By Lynda

After a year-long investigation, the Los Angeles District Attorney’s office charged German architect Gerhard Albert Becker last Wednesday with involuntary manslaughter in the death of L.A. firefighter Glenn Allen.

On February 16, 2011, more than 80 Los Angeles firefighters responded to a blaze at a 13,500-square-foot mansion in the Hollywood Hills; the home, valued at $11M, was slated to be the backdrop of reality TV show Germany’s Next Top Model later that same month. As the fire spread, the second and third floors partially collapsed, burying veteran firefighter Glenn Allen under hundreds of pounds of lumber and plaster debris.

Though Allen’s colleagues were able to dig him out with chainsaws, the firefighter ultimately succumbed to his injuries; he died two days after the fire.

As reported by the L.A. Times, “Building inspectors said Becker had told them there were no plans to build fireplaces in the home, and none were spotted during a final inspection. After the fire, investigators discovered that he had installed four outdoor fireplaces inside the home, a violation of city building codes.”

This is a case worth watching for design professionals as it is, according to Southern California attorneys Brian Stewart and Ryan Harley (both of Collins Collins Muir + Stewart LLP), “the first time in memory that a designer (or contractor for that matter) has been charged criminally with manslaughter in connection with design or construction of a building.”

The following is an excerpt from a short article released by CCM+S which provides a brief explanation of the allegations:

“After a year-long investigation, Mr. Becker was recently charged by the District Attorney with one count of involuntary manslaughter in connection with the death of Mr. Allen. As used here, involuntary manslaughter is defined as an ‘unlawful killing which takes place during the commission of a lawful act, which involves a high risk of death or great bodily harm, that is committed without due caution or circumspection.’ See California Penal Code section 192(b)(2). Acting ‘without due caution or circumspection’ is akin to criminal negligence, and basically amounts to reckless behavior which a normal prudent person would not have engaged in under the circumstances. For comparison, this is the same statute which was recently used to convict Michael Jackson’s doctor Conrad Murray.”

You may download the full PDF at the a/e ProNet website.

ProNetwork News: Private Arbitration – A better way to resolve construction disputes?

By Lynda

The November issue of ProNetwork News focuses on explaining the benefits of arbitration. The author, Melissa Dewey Brumback, is a litigation partner at Ragsdale Liggett PLLC of Raleigh, North Carolina. The bulk of her practice consists of representing architects and engineers in construction-related claims including construction administration and management, plan defects, testing failure claims and delay claims.

The following is an excerpt from Private Arbitration: A better way to resolve construction disputes?:

Architects and Engineers are very familiar with the concept of arbitration of construction disputes. The three main standard sets of form documents – AIA, EJCDC, and ConsensusDOCS, – all contemplate resolving disputes outside of a courtroom. In the past, the default tribunal was arbitration, and, in the case of AIA documents, arbitration through the American Arbitration Association (AAA).

AAA arbitration is, by and large, successful. The tribunal understands that construction disputes are not like typical breach of contract cases, and that individuals with specialized training and knowledge will likely better understand industry norms and terminology. Leaving such concepts as Requests for Information, Construction Change Orders, Construction Change Directives, Construction Administration v. Construction Management, Acceleration, Critical Path and other industry terms to a lay jury is often deemed unwise. By utilizing AAA arbitration, the parties can instead get a panel of industry experts to hear their case and, presumably, the matter can be dispensed with much more quickly and cheaply than traditional courtroom litigation.

However, if you have ever had a chance to participate in a full AAA arbitration, you know that its benefits come with costs: hefty filing fees, inflexible coordinators, uncertain evidence rules and more chance of a panel “splitting the baby.”

What is the best venue, then, for construction disputes? That depends on the size of your project, the nature of the dispute and the jurisdiction you are in. However, one option that is being used more and more is private arbitration.

Private arbitration can either be negotiated up front, during contract drafting, or after a dispute has arisen. In fact, I have even gotten opposing counsel to agree to private arbitration after they have filed the lawsuit.

Click here for the full-length PDF version of this article.

ProNetwork News is the latest value-added resource produced by a/e ProNet. Each monthly edition includes an informative, timely article relevant to the design industry and authored by an industry expert. Contact your local a/e ProNet broker for early access to these excellent newsletters.

The Cost of Perfection

By Lynda

Nobody’s perfect, yet perfection is always desirable, especially on a design project. Just for a second, let’s imagine that perfect world:

Deadlines met. Costs at or under budget. Environmentally-friendly materials preferred by all parties. Nobody injured, no property damaged. Zero miscommunication.

Sounds, well, perfect, doesn’t it?

Unfortunately, there is a downside to trying to attain a perfect project. As it turns out, perfection is unrealistic enough to guarantee disappointment, which will almost inevitably cause rifts between members of the design team. An architect or engineer can better prepare to avoid this scenario by managing the project owner’s expectations early on, refocusing the energy of the team on achieving success rather than perfection.

The following is an excerpt from our ProNet Practice Note entitled The Cost of Perfection: A Design Professional’s Perspective:

Owners that involve themselves in a collaborative and cooperative team approach with the design professional (and construction contractors when identified) are most likely to accomplish successful projects. This team approach involves the honest exchange of ideas, information and problem solving efforts that minimize costs and improve results. However, there is a trend with some owners to define a successful project as one without any risk to the owner. This “risk free” approach is anything but risk free; in fact it may be just the opposite.

Each project is different, but the experienced design professionals on a given project have been through the basic process many times. The architect knows her role as designer. The engineer understands which skill set he brings to the table. This is not necessarily true of the project owner; he or she may come to the same table with some weighty misconceptions. Ironically, these misconceptions may be fueled by the owner’s knowledge that the design professionals have successfully completed so many projects before.

The nature of the design process is such that each project is unique – the first and only one exactly like it. This can be contrasted to a manufactured product that is perfected over time. Consumers buy products expecting perfection or make a trade-off to a lower priced option. Take, for example, a new car, which will be reproduced thousands of times. If you find a defect, you take it back to be corrected under warranty. This is because a manufactured product can be “perfected” through product testing, design improvements and manufacturing process improvements during the life of the production line for that particular model and its predecessors. While the engineering, design and construction community continues to improve its methodologies and learn from the past each project is different with its own unique challenges.

This Practice Note goes on to point out that thinking of the engineering and design process as a product has lead to some common misconceptions:

Contract documents are 100% complete, free of any defects and contain everything needed for the construction contractor to do the job.
No change orders are to be expected.
No contingency budgets are necessary.
Any construction change order probably stems from a design fault.
Once there is a construction contract, the owner only has to pay for changes in the work that the owner initiates.
All extra costs are damages regardless of their origin (e.g. project improvements or changes at the request of the owner should be borne by the owner).
Design professionals are responsible to see that the construction contractor builds it right.
Professional liability insurance is a no-fault policy.
Design documents or construction contract documents are “guaranteed” or come with a “warranty” to be free from defects and fit for the intended use.

To read more and pick up some real-life risk management strategies to aid in this tricky process, please visit our website. The free, full-length PDF version of this Practice Note is available.

Green Projects

By Lynda

By now, most architects and engineers know that green projects are special. They require close attention to a different set of details, further education regarding materials and relevant research, and possibly an enhanced caution when it comes to contracts. You know this. But does your insurance broker?

The following is an excerpt from a newsletter authored by a/e ProNet member Meade Collinsworth of Collinsworth, Alter, Fowler & French, LLC in Miami Lakes, Florida.

“The more I read and research this topic, the more concerned I become with the potential for uninsured claims that can arise out of these projects. In fact, a “green project” is not just another project! I think the very first place that you should begin to review the exposures that arise from green projects would be your client contracts. It is absolutely essential that all contractors review their contracts prior to signing them in order to understand their rights and responsibilities in order to mitigate misunderstandings. This is the reason I am going to concentrate on the contract review process in this articles as I believe this will assist you in meeting your due diligence needs on green projects.”

The full-length PDF version of the article can be found at our website, here.