Contract Issues Archives - Page 3 of 9

Blog Love: Victor O. Schinnerer’s Risk Management Blog

By Lynda

Yes, we know. We’ve given them a shout-out before, but it’s well-deserved. Here’s an excerpt from their most recent post, an answer to a design professional FAQ:

Why are some words in your contracts capitalized and others aren’t?

I recently received a telephone call from a policyholder asking this question because of a minor issue that arose when the term “notice of award” was capitalized in the general conditions, but was not capitalized in the instructions to bidders. His attorney advised that “it could be argued” (a not-unusual term for an attorney to use when trying to interpret contract language) that since the term was not capitalized in the instructions to bidders that it was not the same as the written notice defined in section 1 of the general conditions. The policyholder advised that the issue of telephone notification vs. written notification had been resolved, but it got him thinking about the many terms in his contract documents that are sometimes capitalized and sometimes not and he wondered why.

Capitalized words by convention usually mean defined terms. For example, “XYZ Corporation (‘Client’) promises to….” allows the rest of the contract to use “Client” instead of the full name. The same applies to other defined terms. You define them and then use the capitalized word thereafter to differentiate it from common English terms interpreted as their common meaning.

Visit the Schinnerer RM Blog to continue reading…

To Report or Not To Report? A Potential Claims Question…

By Lynda

Before a design professional decides whether or not to report a professional liability claim, or circumstance out of which a claim might arise, he or she must understand the definition of a claim, circumstance and what is required of them under their policy. The pros and cons of reporting or not reporting a claim are more fully explored in this Practice Notes.

Why Firms Neglect to Report Claims

From an insurance provider’s point of view, it seems that design firms faced with a claim (or a potential claim) too often come close to jeopardizing their professional liability insurance (PLI) coverage. Many firms resist calling their insurance provider to report the matter or ask for advice. Their reasons tend to fall within one of four categories:

Ignorance. They do not realize what their policy requires of them when they are presented with a claim or possible claim.

Fear. They fear the black mark on their claim history more than they fear the claimant.

Denial. They believe that ignoring the problem will produce the best result.

Resolve. They have read their policies, understand the risks, embraced that the issue exists andafter this careful analysis, choose not to report.

Know Your Terminology

Claims

It is critical that insurance policyholders understand their duties, responsibilities, and benefits under their PLI contract. One of the duties is to report all claims promptly.

What defines a claim? Most policies refer to it as a “demand for money or services.” So the telephone call from the angry client asking you to pay for damages they believe they have suffered as a result of your professional services would rise to the definition of “claim” under most policies.

Why is this definition important? Remember, you must report claims promptly. Failure to meet your obligations under the insurance policy may jeopardize your coverage.

Possible claims

It is important to know how your insurance policy defines a “claim” versus a “possible claim.” Possible claims typically do not rise to the definition of “claim” but could become one. Policies generally define possible claims as “a circumstance from which you reasonably expect that a claim could be made.”

Are you required to report these instances to your insurance company? Maybe. Most policies read, “if you report a circumstance,” but some state, “you must give written notice.” The circumstance provision in most policies goes on to say that if you follow the reporting requirements, “then any claim that may subsequently be made against you arising out of such circumstance shall be deemed to have been made on the date the insurance company received written notice of the circumstance.”

With some policy forms, firms have a fair amount of discretion on whether to report a “circumstance,” unlike the requirement that you promptly report all claims. Keep in mind that most PLI policies for design firms are claims-made, which means that insurance cove rage is not retroactive to an unreported occurrence. Continue reading “To Report or Not To Report? A Potential Claims Question…”

Blog Love: ArchNewsNow – Nuts & Bolts

By Lynda

Nuts+Bolts is a “an exclusive ArchNewsNow monthly series to provide A/E professionals with practical tips for a more successful, profitable practice.” All ten articles currently listed are worth a read, and we hope the series is slated to continue. The authors are architects, consultants, insurance professionals, and financial advisers, all of whom offer a timely perspective on the state of the design industry. After perusing the library, here are four posts with the potential to help you and your firm in a risk management capacity:

#1 Nuts + Bolts: Mission Possible: Increase Your Value Without Lowering Your Fees

In this economic climate – or even in a good market – it may be tempting to lower your fees to stay competitive. However, lowering your price is not something you should immediately consider when faced with reduced revenue. As an alternative, you should seek to inject as much value into your services as possible. This will allow you to increase the intrinsic worth of your services, encouraging your clients to pay an appropriate fee for quality, not just quantity. But if you’re convinced that lowering your fees is a solid strategy that will boost your bottom line, think again. Here are a few reasons not to.

#2 You Can’t SELL If You Can’t TELL

You went to architecture school to become a good communicator…right? I’ll take a risk and say that chances are you probably didn’t. But if you want to be a great architect, engineer – or any other kind of professional – you need to know how to communicate clearly and effectively. You simply can’t avoid it. You communicate every day, whether you are meeting with colleagues in your office, talking to a client on your cell phone, e-mailing a consultant, or tweeting your followers. While we live in the digital age, and communication may seem to flow easily, there’s a lot more room for error. We’ve all had that gut-wrenching feeling of hitting the “send” button on an e-mail that had the wrong content or went to the wrong person.

#6 Changing Habits: The Secret to Successful Time Management

No time to grow your business? Learn to set aside time, clearly identify goals, and change bad habits, and you’ll transform your business development efforts from a waste of time into a productive enterprise. Most budding architects are initially attracted to the design side, rather than the business side, of their profession. As a result, many architects never develop the skills necessary to build their businesses. But just as design and project management are part of your daily routine, you should set aside time for business development as well. How do you make time for business development when you’ve been avoiding it or aren’t sure how to fit it into your day-to-day practice? The trick is to fundamentally and permanently change your habits. This sounds daunting, but you can achieve it if you follow these practical steps.

#8 Best Friends Don’t Make the Best Partners

In popular culture (and at most architecture schools) the architect is often portrayed as a lone figure, from Howard Rourke in Ayn Rand’s seminal work, The Fountainhead, to Frank Lloyd Wright, to Frank Gehry. Most people perceive architects to be creators working alone in the dark. Contrary to popular belief, it takes more than a single artist to make a great building. Most architects know that. What’s less obvious is that, in reality, most successful architectural practices are not sole practitioners but partnerships.

About the Authors of the Nuts+Bolts Series:

Michael S. Bernard, AIA, Principal, Virtual Practice Consulting

Mary Breuer leads Breuer Consulting Group

Founder of integrated communications firm Hausman LLC, Tami Hausman

Donna L. Maltzan is a business development trainer, facilitator, consultant and coach

Michael M. Samuelian, AIA, AICP, vice president at Related Companies

Stanley Stark, FAIA, LEED AP, a New York City-based architect who has held senior leadership positions with major firms including HLW, HDR, and Francis Cauffman

Steve Whitehorn, managing principal of Whitehorn Financial Group, Inc., the creator of The A/E Empowerment Program®

California Supreme Court Rules Against California’s Architects in the Beacon v. Skidmore Owings Case

By Lynda

The closely watched California Supreme Court case of Beacon Residential Community Association v. Skidmore Owings and Merrill et. al. has been decided, and the opinion is bad news for California Architects. The Court held that architects owe a duty of care to future homeowners in the design of residential buildings where the architect is a principal architect on the project, meaning that the architect is not a subordinate to other design professionals.

Case background and procedural history

As a refresher, this case involved the design and construction of residential units in the Bay Area of California. Originally held as apartments, the units were converted by one of the developers into condominium units. After completion, the condominium association filed a lawsuit against the original developers, contractors, and designers alleging a long list of construction and design defects. Among the issues was a complaint that the individual units did not include air conditioning and that the quality of the windows used was so deficient that the individual units experienced excessive heat gain, making them unlivable.

Skidmore Owings and Merrill (“SOM”) and HKS, Inc. (“HKS”) were the architects for the project. In reliance on past case law in California, SOM and HKS filed a motion in the trial court arguing that they did not owe any duty of care to the condominium association because neither SOM nor HKS had contracted with that entity. The trial court granted that motion. The intermediate appellate court reversed that ruling, holding that under other California law, SOM and HKS in fact did owe a duty to subsequent owners who were foreseeable even though SOM or HKS did not contract with them. This created an arguable conflict between cases, and thus the California Supreme Court accepted the case for resolution.

Our firm was privileged to file an amicus brief on behalf of the American Institute of Architects and the American Institute of Architects, California Council, arguing that architects should not be held to owe a duty to downstream owners with whom the architect did not contract. Continue reading “California Supreme Court Rules Against California’s Architects in the Beacon v. Skidmore Owings Case”

Construction Phase Services: Considerations for a Successful Outcome

By Lynda

The construction phase is a dynamic time of a project and a design professional’s involvement is significant from a risk management perspective since it allows the design professional the opportunity to provide input during the construction of the project. Since no designs are perfect (and, moreover, are not expected to be perfect to still meet the standard of professional skill and care), all designs require some level of interpretation that is best done by the design professional who created them. During construction, the design professional can visit the jobsite to determine if construction is proceeding in general accordance with the plans and specifications and clarify the design intent when necessary. This article addresses issues design professionals should consider if they provide services during this phase.

Do you have the resources?

The firm must have sufficient staff to devote to this important phase of the project. The services during this phase require experienced professionals who know how to handle themselves on the jobsite and how to successfully complete tasks in the office. If junior professionals perform construction phase services, the firm must ensure senior professionals are available to (and actually do) mentor the junior staff. A successful mentoring program requires regular and meaningful communication between junior and senior staff who need to be proactive to nurture the mentoring relationship. Mentoring is a two-way street: it will not be effective if busy senior professionals do not devote time to advance junior professionals’ development and junior staff must take the initiative to seek out senior staff for guidance.

What does your contract say?

Industry standard documents have relatively balanced language regarding the construction phase. However, design professionals are often faced with a client-

proposed document that may not include appropriate language for the design professional’s involvement in the construction phase. Continue reading “Construction Phase Services: Considerations for a Successful Outcome”

Subcontract Termination: The right business decision?

By Lynda

Sometimes the grounds for termination are absolutely clear. And sometimes several legal options are available. But when preparing to terminate a subcontract, there’s one more question to ask: Is this the right business decision? We turn to Burns Logan’s Southeast Construction Law Blog for the answer.

The following is an excerpt from a September 2014 post on the blog titled Subcontract Termination: Not for the Faint of Heart:

After a few weeks of poor performance by the stucco subcontractor, my client and I sat down to determine all the possible avenues to resolve the issues. The first thing we did was pull out the subcontract which controlled the stucco subcontractor’s work. We wanted to be sure that the subcontract included all the necessary provisions to allow my general contractor client to remedy the situation. Some of the common default provisions in subcontracts include:

failure to prosecute the work promptly and with due diligence;
failure to prosecute the work in a workmanlike and safe manner;
failure to supply proper supervision;
failure to properly staff the job;
failure to supply materials and equipment of proper quality and quantity;
failure to promptly correct defective or deficient work;
failure to pay sub-subcontractors or suppliers;
failure to maintain the project schedule as directed by the contractor; and
failure to submit proper progress and completion schedules.

We found that this subcontractor had violated many of the standard default provisions in my client’s subcontract. Therefore, we felt we had the proper authority to issue notices of default.

Continue reading “Subcontract Termination: The right business decision?”

a/e ProNet’s Fall Meeting Kicks Off in Chicago

By Lynda

Dozens of a/e ProNet members from across the country are gathering in Chicago this week for the annual fall meeting. They will be joined by representatives from several top tier professional liability insurance companies and a few major design industry organizations, including the AIA, NSPE, and ACEC.

Over the course of three days, members will receive presentations from the following insurance carriers: Beazley, Ironshore, HCC, Victor O. Schinnerer, Axis, Catlin, Hanover, RLI, All Risks, Liberty, Travelers, Navigators and Arch. These presentations will help inform the specialist brokers of a/e ProNet about industry trends, policy language changes, new coverage opportunities, and the like. It will also give our members a chance to ask questions and make suggestions pertinent to their own clients.

Along with insurer presentations, there will also be ample opportunity for the brokers to network with one another, alerting the group to trends around the country and problem solving in the collective.

To open the week, the Board of Directors will meet, and to close, Kent Holland of Construction Risk will present to the membership on the second edition of a/e ProNet’s Risk Management and Contract Guide for Design Professionals.

Waiver of Subrogation: A Valid Defense for Architects and Engineers?

By Lynda

An 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?”

Important Protection for Licensed Individuals

By Lynda

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…