Contract Issues Archives - Page 4 of 9

Review of the Owner/Design Professional Agreement from The Design Professional’s Perspective

By Lynda

This article reviews some of the issues addressed in a standard Owner/Design Professional Agreement, outlines concerns from the Design Professional’s perspective, and discusses how the Design Professional can reduce liability on a project and ensure equitable adjustments to the contract price and schedule for changed or additional design services. The agreement contemplated by this article is one to be used as part of a traditional design-bid-build approach.

Standard of Care

When trying to hold a Design Professional liable for negligence, one of the first legal considerations is the standard of care owed. Absent an express contractual warranty, the law does not require the Design Professional to guarantee that the design will be perfect. Rather, the standard of care that the courts will typically apply is that degree of care which a reasonably careful architect/ engineer would use under like circumstances. However, nothing prevents an Owner from seeking contractual language that increases the typical standard of care owed by the Design Professional to the level of an express warranty of the design; in fact, Owners frequently attempt to do so in their proposed agreements – and courts will enforce such language. This is a danger to the Design Professional, as it is possible that the increased standard of care could go beyond professional liability insurance coverage available to the Design Professional. Thus, the Design Professional should insist on the deletion of any such guarantee as unreasonable.

Similarly, a Design Professional should insist on the deletion of any proposed language that attempts to establish a fiduciary duty between the Design Professional and the Owner, as such language also results in an increased standard of care owed on the Project. Continue reading “Review of the Owner/Design Professional Agreement from The Design Professional’s Perspective”

The Additional Insured Conundrum: A/E Firms Face a New and Potentially Growing Liability Exposure

By Lynda

So, you’ve scored a new project! This is a shining moment. The road before you vibrates with the potential for creativity and ingenuity. You receive the contract in your email. Double-click. All you have to do is sign on the dotted line. Scroll, scroll, scroll. Insurance Requirements?

Oh boy. You’d better send this one over to your insurance broker for a quick review.

At lunch, you sketch ideas on the back of your napkin, dying to get started. Buzz! Your phone trembles on the table. It’s your broker and, sadly, she didn’t just give you two big thumbs up. Nope. Turns out, the Insurance Requirements include the following line:

Client shall be named as Additional Insured under CG 20 10 (85) or equivalent.

No-can-do. This endorsement is obsolete. But your new client wants it! And so you’re face-to-face with the eternal and confounding Additional Insured Conundrum.

Does this scenario sound familiar to you? You’re not alone. The following excerpt from our October 2013 issue of ProNetwork News may be able to help:

The Issue

Recent court decisions and increasingly onerous client demands are creating substantial insurance related difficulties for design firms. This article will focus on the potentially hazardous and surprising consequences of adding clients and others as additional insureds to the A/E’s general liability insurance (CGL) policy(s).

A recent Illinois Appellate Court Decision illustrates this threat: Patrick Engineering Inc. (Patrick) v. Old Republic General Insurance Co (Old Republic). The basic facts are:

Patrick was retained by Commonwealth Edison (Com Ed) to provide engineering services in connection with relocation of utility poles. While working on the project, Com Ed smashed through an underground sewer in at least four separate locations. Subsequently, the local municipality, Village of Lombard, sued Com Ed alleging that it acted negligently. Continue reading “The Additional Insured Conundrum: A/E Firms Face a New and Potentially Growing Liability Exposure”

Blog Love: ConstructionRisk.com on YouTube

By Lynda

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!

Engineering Inc. – 2013 Professional Liability Insurance Survey of Carriers

By Lynda

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”

The NEW Schinnerer Risk Management Blog

By Lynda

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.

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!

An Unfair Duty to Defend

By Lynda

No engineering project is without risk. Somewhere between the goal of designing the best bridge, building or water treatment facility and running a profitable business lurks the ever-present possibility of litigation. A legitimate disagreement can occur, a company can make a mistake, or a firm or government entity—or a member of the public—can file a lawsuit that forces the firm to defend itself and its work. “A lot of risks exist and they’re not necessarily related to the quality of the work performed,” says John Moossazadeh, a senior vice president at Kleinfelder in San Diego.

Engineering firms often take jobs that knowingly expose the firm to legal risk. But how much risk is too much?

That’s a question that more and more engineering and design firms are asking when confronted with contracts that contain controversial “Duty to Defend” language.

A contractual Duty to Defend provides that the engineering firm will pay for attorney’s fees and costs incurred in a client’s defense of a claim. Depending on the con-tract language and the governing jurisdiction, this duty may be immediate from the time the claim is made, and may exist regardless of whether the engineer is found to be negligent. Although basic indemnification and defense clauses are common, and they typically assign risk to the negligent party, a growing number of developers and agencies request—and, in some cases, demand—that the consultant or firm in charge of the project defend any suit or other legal action brought against the developer or owner, and sometimes even irrespective of whether the claim is related to the engineer’s services.

Duty to Defend provisions are therefore criticized because a consultant or engineer who signs such an agreement could be legally required to bear the cost of defending against any project-related claim, even when the claim has nothing to do with the services performed by the firm, and there’s zero evidence of negligence. “It forces engineers to take responsibility for far more than the work they’re being paid to do and what their insurance covers,” explains P. Douglas Folk, principal at Folk & Associates in Phoenix. Continue reading “An Unfair Duty to Defend”

Architect & Engineer Insurance FAQ: Breach of Contract

By Lynda

Why should I strike “breach of contract” from the indemnity provision in my agreement?

For one thing, it is redundant as there is already a remedy under the law should you breach your contract. Please note the excerpt in the next question from our Practice Notes Vol. 4 NO. 2, Indemnification: How to Identify Unacceptable Risks and Get Them Out of Your Agreements.

What is the significance of the statement in an agreement: “breach of any term or condition of this Agreement”?

Negligence may be difficult to prove, but breach of contract is not. To establish a breach, all an owner need do is prove that 1) you owed a duty to perform under your agreement, 2)you breached that duty, and 3) damages were sustained as a result. This is your client’s fall back position in the event negligence turns out to be impossible to establish. It is also your invitation to the owner to sue you at your expense. There is great leverage in this, and it flows in a single direction-from you to your client. Your client sues you for breach of contract, and you pay the associated attorneys’ fees and costs. Arguably, this is inconsistent with public policy. Public policy generally demands mutuality as a matter of equity where there is an agreement by one party to pay the attorney’s fees of another regardless of the outcome of a dispute between the two. Attorney’s fees are the only issue here, for if you are found to have breached your contract, there is a remedy for that in the law. As far as you are concerned, it is neither necessary, nor is it appropriate for you to add your indemnity to that remedy. Absent negligence your indemnification for breach of contact may be uninsurable; absent mutuality, it is unfair. Delete this language if you can. If you encounter sustained resistance, you might invoke the public policy argument and propose, as an alternative, to substitute language elsewhere in your agreement calling for the non-prevailing party to any dispute to compensate the prevailing party for costs of defense. There is leverage in this for you, but there is also some risk. Seek the advice of counsel before you pursue this strategy.

Excerpted from the FAQ page on the a/e ProNet website, one of many risk management resources for Architects & Engineers. Have any questions? Contact your local a/e ProNet broker or contact us directly today.

Insurance 102: Property Coverages for Architects & Engineers

By Lynda

This issue of ProNetwork News is meant to serve as a basic reference guide to the property insurance coverages typically purchased by design firms. Last month we posted a companion piece, Insurance 101: The Things You Always Wanted to Know About Liability Coverage But Were Afraid to Ask.

We continue our overview of insurance products of interest to design professionals with this review of property coverages that may apply to the needs of your particular practice. As always, we encourage you to ask your broker what insurance is right for you.

BUSINESS PROPERTY INSURANCE

Whether you lease or own your office, you need to insure office equipment, furniture, fixtures, computer equipment, phone systems, fax/copiers, valuable papers and fine arts for fire, theft and water damage. Insuring these valuables for “replacement cost” on an “all-risk form” means that your business is most likely to be reimbursed properly for a covered loss. If you lease furniture and equipment, the lessor will require this coverage and will be designated as a “loss payee.” Landlords of rented property usually require their tenants to maintain property coverage for the rented space to cover improvements and betterments provided to the leaseholder.

Since most design firms are heavily dependent on computer systems, it is important to properly inventory equipment and software.. For example, the cost to reproduce plans and specifications kept on computer files is significant when considering the insured value of valuable papers and records. However, no limit of insurance is a substitute for reliable backup procedures.

Stand-alone IT coverage packages, including security breach, are evolving almost daily. They can cover both first party losses (yours) and third-party losses (those for which you may be liable to others). Ask your broker what products may best apply to your needs.

VALUABLE PAPERS INSURANCE

A/E firms have in their possession valuable papers and documents whose destruction would prove very costly. Maps, plans, specifications and books are some examples. All-risk protection is generally available excluding wear and tear, gradual deterioration and vermin. Certain valuable papers may be insured specifically, or “scheduled.” More commonly, a blanket limit is established to cover all valuable papers. Articles insured on a blanket basis are covered for their replacement cost. Scheduled items are covered on a valued basis even though it is not possible to replace them with like kind and quality. Continue reading “Insurance 102: Property Coverages for Architects & Engineers”

Why should Architects & Engineers use a specialist Insurance Broker?

By Lynda

At our fall meeting last month, a panelist asked an important question:

Why is an insurance broker necessary for design professionals? Shouldn’t architects and engineers be able to access insurance companies and purchase Professional Liability policies directly?

Members of a/e ProNet are professional, independent brokers who serve the insurance needs of design professionals. Membership in our association is by invitation only, and members must be experienced and have a minimum number of design professional clients, as well as a minimum amount of premium volume. Our members must also provide their clients with services beyond the sale of a professional liability policy.

In addition to knowing the professional liability marketplace, they negotiate the best product at the best price for their clients. That negotiation happens every year at renewal time, and because our members are independent—not obligated to any one insurance company—they are in the best position to compare and contrast policies. Often, the time and expertise this process requires is underestimated by A/E clients. With a specialist broker, the A/E can rest assured that they have an advocate annually, both in relation to their bottom line and their exposure as a professional in a demanding and risky environment.

Most importantly, though, that advocacy doesn’t end when the renewal has been processed. The rest of the year, our members’ clients can count on their specialist brokers to provide services such as contract review, accredited continuing education, and other risk management services. Continue reading “Why should Architects & Engineers use a specialist Insurance Broker?”