Continued from the August 2016 issue of ProNetwork News including an analysis of Beacon Residential Community Association v. Skidmore, Owings & Merrill LLP, et al. and its impact on future court decisions.

IV.        Important Contract Provisions

A.        Indemnity, Indemnity, Indemnity!!!

In the real estate business the often-touted phrase is “location, location, location.”  In the design and construction industry, the most important contract provision is INDEMNITY.  Indemnity is an agreement to assume a specific liability in the event of a loss.  It may mean a shifting of risk from one party to another.  More often than not, it is the client saddling the design professional with an onerous indemnity provision.  Many articles have already been written about addressing the client-drafted indemnity.  Avoid an express duty to defend (and in California especially, negate this duty).  Tie the indemnity obligation to a determination of negligence.  However, in the context of agreeing to perform professional services on a condominium project, you must not only be wary of the indemnity provision imposing a contractual obligation on the design professional, but serious consideration should be given to obtaining express indemnity language from the client developer and/or the client developer’s contractor and subcontractors.  Since the design professional may be sued directly by an HOA or individual unit owners, express indemnity running in favor of the design professional is equally important.

B.        Waiver of Consequential Damages 

These damages are the “indirect damages and expenses” claimed by plaintiff(s) allegedly relating to asserted design and construction defects.  Often, consequential damages include damages relating to delays, loss of use, lost profits, etc.  It is a balancing provision in that it should recognize, much like a limitation of liability (discussed further below), that there are relative risks and rewards for each party’s participation on the project.  As was commonplace during the recent recession, some client developers pursued claims against design professionals and contractors for missed market opportunities to sell their individual units before the housing bubble burst.  The design professional has no control over such market factors.  A properly-worded, mutual waiver of consequential damages is an appropriate way to address this.

C.        Limitation of Liability

Given the increased risk of being sued on a condominium project, a limitation of liability (overall cap) of the design professional from the client developer is essential.  A limitation of liability provision can be tied to the amount of available insurance, the architect’s total fee, or some other amount as negotiated between the parties to the contract.  The limitation of liability provision should be negotiated at arm’s length such that both parties have the opportunity to accept, reject or modify the provision.

This is an excerpt of the October 2016 issue of ProNetwork News. Download the full PDF of If You Build It, They Will Sue: Condominium Projects – Part II to continue reading. Along with further explanation of the relevance of The Beacon Case, the second in this two-part series provides an overview of several more important contract provisions, including: No Third-Party Beneficiaries, The Certification of Merit, and Provisions Requiring the Developer and Subsequent Owners to Include Maintenance Requirements and Manuals in CC&Rs and Purchase Agreements. As always, these newsletters are available to a/e ProNet clients the month they are published. If you’d like to take advantage of this value-added service, get in touch with your local a/e ProNet broker today.

About the Author

Trevor Resurreccion is a partner at Weil & Drage, and an experienced litigator representing architects, engineers, general contractors, subcontractors, and other members of the design and construction industry. Trevor has handled a wide variety of construction related cases, including claims for design errors and omissions, delays, cost overruns, mechanic’s liens, construction defects, as well as catastrophic personal injury and death claims. He received his undergraduate degree in Architecture with a concentration in construction management. Trevor’s background in the design and construction industry includes hands-on experience on construction projects, including construction administration for an international architectural firm on a high-profile project in Los Angeles and construction management for Georgetown University on a significant university project. As an attorney, he prides himself in his commitment to advocacy for his clients, small and large. He has experience in all aspects of litigation, including arbitrations, trials, and appeals. He is licensed to practice law in California and Nevada.

On April 27, 2017, Governor Jerry Brown signed Senate Bill 496 (“SB-496”) into law. SB-496 will significantly lessen the burden of indemnity provisions and the dreaded immediate duty to defend in both public and private contracts with design professionals. Efforts to obtain passage began several years ago and were spearheaded by the hard work of the American Council of Civil Engineering Companies, California Chapter (“ACEC-CA”) with the support of American Institute of Architects, California Chapter (“AIA-CA”), as well as member firms. Collins Collins Muir + Stewart LLP was involved with both ACEC-CA and AIA-CA in assisting with pushing the bill through.

Authored by state Senator Anthony Canella (R-Ceres), SB-496 significantly expands Civil Code section 2782.8 protections to add private contracts entered into by design professionals after January 1, 2018. Importantly, SB-496 limits the “duty to defend” to the comparative fault of the professional which puts both private contracts and public contracts on equal footing.

What does this mean in practical terms?

For all private contracts entered into by a design professional prior to January 1, 2018 (meaning those contracts without the protections of SB-496) that contain a provision obligating the design professional to indemnify and/or defend their client, the design professional could be on the hook for all of their client’s attorneys’ fees and costs by virtue of being sued, even if the design professional was ultimately found not to be at fault. For private and public contracts entered into after January 1, 2018, with the protections of SB-496, if the design professional is found to be 25% at fault, then the law provides that they would only be liable for 25% of the fees and costs of a party seeking contractual indemnity and defense reimbursement. If found 0% at fault, they would not be responsible for any of their client’s attorneys’ fees or costs.

Currently, there is no way to insure to cover the costs and exposure created by an immediate “duty to defend” provision because, though professional liability insurance is available to design professionals, it only covers damages that result from a design professional’s negligence. This bill is a fair compromise because it protects against the design professional’s uninsurable first-dollar defense indemnity obligation while allowing a client the ability to recover those costs and fees tied directly to the percentage of fault. Assuming the governor signs the bill which is expected, this is a big step in protecting design professionals from the harsh impact of indemnity provisions in future public and private contracts.

About the Authors

Justin D. Witzmann

Ryan P. Harley

Nothing contained in this article should be considered legal advice. Anyone who reads this article should consult with an attorney before acting on anything contained in this or any other article on legal matters, as facts and circumstances vary from case to case. This post was originally published as a newsletter by Collins Collins Muir + Stewart LLP in April 2017. It has been reposted with permission.

Screenshot 2017-01-27 14.13.07Do architects owe a “duty of care” to the homeowners of a condominium project with whom the architects have no contractual privity?  According to the California Supreme Court, they do.  What does this mean in practical terms?  The answer is that architects are now more than ever exposed to potential future claims and lawsuits brought by homeowners and the homeowners’ associations years after the project has been completed even where the architect’s design decisions are trumped by those of the project developer, and the architect’s role in the construction phase of the project is limited.

The purpose of this paper is to provide background on an architect’s potential liability to its client and third parties on condominium projects as well as guidance on how to prospectively address the concerns highlighted by a recent California Supreme Court decision and many other lawsuits in which architects have been sued by third parties.  Specifically, we address the following topics: assessing your owner client, important contract provisions, and insurance issues.  The intent is to provide a roadmap for architects in assessing their risks on condominium projects and a practical approach to addressing those risks.  While it may not be possible to fully insulate architects from all risks, it is certainly a good practice to have a firm understanding of those risks and to address the risks up front.  Benjamin Franklin is attributed with the statement: “In this world nothing can be said to be certain, except death and taxes.”  For architects who design condominium projects, unfortunately, lawsuits should be added to that list. Continue reading “If You Build It, They Will Sue: Condominium Projects – Part I”

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Leddy Maytum Stacy Architects, an a/e ProNet client hailing from San Francisco, California, has received the coveted AIA Architecture Firm Award for 2017.

“Firm principals William Leddy, FAIA, Marsha Maytum, FAIA, and Richard Stacy, FAIA, began collaborating in 1983 and the belief that architecture is the synthesis of poetics, economics, technologies, and meaning has always been embedded in the firm’s culture. Dedicated to addressing issues of resource depletion, climate change, historic preservation, and social equity, LMSA and its leadership clearly demonstrate that architects can help their communities adapt to a complex and rapidly changing world. To that end, the firm’s proficiency in diverse building types – from affordable housing to the adaptive reuse of historic structures – has been recognized with more than 140 design awards and are only one of three firms to have ever received eight AIA COTE Top Ten awards.”

Founded in 2001 by principals Marsha Maytum, Bill Leddy and Richard Stacy, LMSA is well known in the region for its long list of modern, sustainable projects. This includes the Ed Roberts Campus in Berkeley and North Beach branch library, as well as multiple low-income apartment buildings in the Bay Area. LMSA’s Plaza Apartments and Rene Cazeneve Apartments house “formerly homeless residents who need on-site support services to try to rebuild their lives.”

As noted by SFGate.com, “In announcing the selection, the AIA praised Leddy Maytum Stacy for its ‘highly influential work that advances issues of social consciousness and environmental responsibility.’ Only two other San Francisco-based firms have received the national firm award in the past 45 years: EHDD in 1986 and Gensler in 2000.”

LMSA has consistently ranked among the Top 50 firms each year since 2011. It considers itself “a teaching practice committed to developing complete, well-rounded architects, leaders in the profession and effective global citizens.” Read more in Architect Magazine.

Congratulations to Leddy Maytum Stacy Architects on this honor from the AIA! Your commitment to social consciousness and environmental responsibility is an inspiration.

Shout-out Credit

Leslie Pancoast, CIC, RPLU
Vice President IOA Insurance Services – Pleasanton, CA
Email: Leslie.Pancoast@ioausa.com / Phone: 925-416-7862


thecannery_ranchhouse

The Cannery–a master-planned, “farm-to-table” community in Davis, California featuring neighborhoods joined by beautiful sets of trails and bike paths–has received the Gold Nugget Award for the Best Residential Housing Community of the Year. Congratulations to a/e ProNet client Jeffrey DeMure + Associates, an integral part of the outstanding team of design professionals responsible for the win!

Shout-out Credit:

Leslie Pancoast, CIC, RPLU
Managing Partner
IOA Insurance Services – Pleasanton, CA
Email: Leslie.Pancoast@ioausa.com / Phone: 925-416-7862

PNN_1503In 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 fund the costs of litigation from their own resources. The unfortunate reality is that pacified by the promise or potential to recover their attorneys’ fees at the end of the dispute, many client claimants and their attorneys incur far more than they would absent that prospective reimbursement—even to the point of incurring multiples in expense beyond the prospective recovery. Even if the claim is largely defeated or reduced, even a minimal net recovery may establish the client as the prevailing party entitled to recover the attorneys’ fees incurred in the action.

Whether expressly stated as such, or not, it is important to recognize that a prevailing party attorneys’ fees clause is almost always a two edged sword equally available to both parties. As a matter of consumer protection, nearly every state has statutes which refuse to recognize one-sided attorneys’ fees clauses and automatically convert the clause into a bilateral clause entitling and exposing each side to the benefits and burdens of the clause. (See for example Oregon Revised Statute 20.096 and Florida Statute Section 57.105(7).) Accordingly, a clause which purports to entitle the design professional to recovery of its attorneys’ fees in pursuit of its fees will most often to create and equivalent right of recovery in the client for contract related claim.

Whether proposed by the client or by the design professional, prevailing party attorneys’ fees clauses are a common component of many commercial contracts, including design professional service agreements. An unqualified prevailing party attorneys’ fees clause is almost never a good idea for a design professional. Where such a clause is proposed, the following five options present a descending structure of preferred approaches. In proposing or negotiating any of these five options, frequently the best rationale in support of these approaches is that any dispute should focus on resolution of the dispute and not arming the lawyers for battle.

This has been an excerpt of the March 2015 issue of ProNetwork News, titled Prevailing Party Perils: Attorney’s Fees’ Clauses in Professional Service Contracts. To continue reading about the five preferred approaches to dealing with an unqualified prevailing party attorneys’ fees clause, click here to download the full PDF version of our newsletter for free.

About the Author

David A. Ericksen is a principal shareholder in and immediate past President of the law firm of Severson & Werson in San Francisco, California, and leads the firm’s Construction and Environmental Practices. For over twenty years, Mr. Ericksen has specialized in the representation of architects, engineers, construction managers, design-builders, and other construction professionals. Mr. Ericksen’s expertise covers all aspects of such professional practice as lead litigation and trial counsel, as well as being an active resource for risk management, strategic planning, and transactional matters. He is a trusted and valued resource to design and construction professionals and their insurance carriers across the United States and beyond. He has been repeatedly recognized as an industry leader, including being named a Construction “SuperLawyer” for the last eight years. He is a graduate of Boalt Hall School of Law, University of California, Berkeley, a former law clerk to the Washington State Supreme Court, and a member of and resource to numerous construction and environmentally-related professional organizations. Mr. Ericksen is a frequent speaker before construction professional organizations such as the AIA, SEA, ACEC, CSI and others, as well as providing in-house training seminars for firms.

CJK_FortyHolyMartyrsOrthodoxChurchChurches, cathedrals, and temples have historically drawn attention for their architectural beauty. Sometimes these buildings took centuries to complete, employing tens of thousands of craftsmen, all to meet the original vision of a single architect, inspired by the great Architect in the sky. It would be a mistake to think that–with the exception of project length and the architect’s scope of services–this has changed. Modern churches and temples continue to rise all over the world, and the architects behind them are often motivated by their own faith. These buildings are often spectacularly intricate, having been designed with a whole and holy purpose in mind.

One architect who has dedicated his practice to the design of such buildings is a/e ProNet client Christ J. Kamages of CJK Design Group in California. Many of the glorious, golden domes of modern Greek Orthodox churches, cathedrals, and missions across the country can be attributed to him. Last month, Mr. Kamages’s 33-year career earned him the honor of being elevated to the AIA College of Fellows at a ceremony in Atlanta, Georgia.

As noted on the CJK Design Group blog:

Established in 1857, the American Institute of Architects is a professional association made up of Architects and a related field, which seeks to “promote the scientific and practical perfection of its members” and “elevate the standing of the profession.” Through the AIA, standards of ethics and business practice have been developed and members hold each other up to maintain the highest standards. Each year, the AIA selects Architects from its membership to be elevated to the status of Fellow. Fellowship is one of the highest honors the AIA can bestow upon a member. Elevation to Fellowship not only recognizes the achievements of the architect as an individual but also elevates before the public and the profession those architects who have made significant contributions to architecture and to society.

Mr. Kamages was one of only 147 architects to be elevated to the College of Fellows this year. Of the 85,000-architect membership, only 3,200 have received this distinction.

Congratulations to Mr. Kamages and his fantastic team. We look forward to seeing many more beautiful designs from you in the years to come!

Shout-out Credit:

Leslie Pancoast, CIC, RPLU
Managing Partner
IOA Insurance Services – Pleasanton, CA
Email: Leslie.Pancoast@ioausa.com / Phone: 925-416-7862

“Brochurebiage”

brochurebiage

Yes, “brochurebiage” is a word we made up. It refers to that optimistic and puffed‐up verbiage that can creep into a professional’s brochures or other promotional materials. Many people are rightfully proud of their past work and skill and need to sell that experience and ability to prospective clients. However, use such language with caution.

Licensed professionals promoting themselves as the best around can be an effective way to attract clients. The risk comes when they enter into a contract that refers to or incorporates language in promotional material because it could needlessly raise the standard of care. In California, while licensed professionals may hold themselves to a high personal standard, the default legal standard by which professional negligence or malpractice is evaluated is the standard of care of an average professional in the same field and community. This default standard of care is favorable for licensed professionals because it means to avoid liability, they do not need to be perfect. After all, who is?

This average standard of care can be modified however through contract. Professionals sometimes inadvertently do this when a contract refers to or incorporates a proposal or other promotional item that promises superlative services or the “highest standard of care.” Including a standard of care that goes beyond what is required by law unnecessarily raises the bar for performance and exposes the professional to a greater risk of liability if there are allegations that the work was anything less than perfect. Additional problems may arise because professional liability insurance typically covers the average standard of care, so a contract promising a higher standard might not be covered, which could leave the professional on the hook alone.

To minimize this risk, avoid exaggerated language that over‐promises in contracts. Rather than say a professional will provide the absolute best services, say they work hard to provide professional services that lead to successful projects. Show clients examples of superlative work. Finally, avoid contracts that refer to or incorporate promotional materials because that could unnecessarily raise the standard of care, or limit such incorporation only to the scope or fee portion of the proposal. Highlighting past success and emphasizing skill is necessary to generate business, but exercise caution and balance when using or referring to brochurebiage in contracts.

This article has been reprinted with permission from its authors, David E. Barker and Erin Dunkerly of Collins Collins Muir + Stewart LLP in California. 

Nothing contained in this article should be considered legal advice. Anyone who reads this article should consult with an attorney before acting on anything contained in this or any other article on legal matters, as facts and circumstances will vary from case to case.

boxhouse

Signs of recovery in the American housing market–in architecture, engineering, construction, real estate–are increasing. Yet, in 2014, the market saw a new, disappointing record:

The number of homeowners under the age of 35 hit its lowest point ever.

Home ownership has long been synonymous with the American Dream. But where are the young people in this game? Some have turned to alternative housing solutions.

Pacific Standard magazine recently blogged the experience of Luke Iseman, a 31-year-old graduate of the Wharton business school, who lives in a white shipping container on a small lot in West Oakland. Driven from the traditional urban housing market as a renter by exorbitant rates in San Francisco, and holding more than $60,000 of student loan debt, Iseman is putting his burgeoning business savvy to good use for himself and others with the establishment of an alternative housing start-up called Boxouse. Continue reading “Boxouse: Young Americans Turn to Alternative Housing”