drone

They offer a bird’s eye view of construction sites. They provide breathtaking photographic opportunities for architects looking to showcase their work. And they’re fun to fly. However, while they may be intriguing tools for architects and engineers, drones open up the design firms that use them to many possibly unanticipated risks. These days, obtaining a drone is as simple as stopping at your local WalMart, but all drones are not created equal, nor are all drone pilots equally skilled and certified.

Victor O. Schinnerer’s Risk Management Blog recently offered an overview of this issue. Should your design firm use a drone in your administration of contracted services? Read on:

“Professional service firms have to be aware that the use of drones is not a simple transition in the process of observing the work on a project site. As with web cameras, drone cameras often produce far more images than are used in the evaluation of a project. If not properly denoted in a contract, the scope of the firm’s services could include the use of all the available images as part of the firm’s duty to observe and evaluate the project as part of construction contract administration duties.

“Additionally, while licensed drone operators are undoubtedly careful about having general liability insurance that protects others from their negligence in aerial activities, and follow the FAA’s rules and guidelines, many firms using drone photography are doing so as amateurs. Turning hobby activities into commercial uses is likely to be unlawful, dangerous, and uninsured.”

Continue reading Drone use can put firms at risk beyond their knowledge by Frank Musica

PNN_1411Which is better, more or less documentation in your project file after the job is complete? Despite recent advances in technology, document retention has become a difficult, expensive and complex proposition. Computers have changed design professionals’ work flows and methods, greatly increasing efficiencies, but also exponentially multiplying the volume of data; e-mails, attachments, drawing revisions, text and voice messages, not to mention folks are still sending faxes and letters, actual paper ones. All of this adds up and can become an unmanageable mess, even for the best of us.

Making decisions now about which project documents to keep and which to discard is like trying to pick who will win the Super Bowl in the year 2024. You never know which ones will be the most important until you are right in the middle of a claim. Experience and common sense tell us that there are certain documents that, no matter what, are probably safe bets to come in handy down the road. You may also be required by law or contract to keep certain records for certain time frames.

This article will offer suggestions on those categories of critical project documents necessary to defend claims, and which ones are better off being discarded as a matter of course after project completion. The question ultimately is framed as “what to keep and for how long?” Of course, these are only suggestions, and you should discuss implementation of any document retention program with your chosen legal and accounting advisors in your specific jurisdiction. Further, this article only addresses retention of construction project documents and not corporate, HR or tax records.

“Age of Discovery”

Modern construction projects, with all this data, are subject to modern lawsuits. These lawsuits are conducted by increasingly younger, tech savvy and sophisticated lawyers who sometimes make the litigation more about the discovery effort than about the facts of the case. Parties are allowed to submit detailed and specific “requests for production of documents” once in the lawsuit, or issue subpoenas to non-parties. State and federal court discovery rules could require parties to turn over copies of all information they have in their possession related to the project. Continue reading “Document Retention: More Paper or Paper-Less?”

PNN_1505Many design firms attend risk management training sessions and implement certain practices based on an industry trend or project claim. Other firms may only concentrate on contracts and insurance coverage’s as a risk management strategy, which only addresses a portion of an effective risk management program. As they say – “you cannot manage something that is not measured.” With that said, the first question should be:

How effective is your risk management program?

An excellent method in answering that question is determining a design firms risk profile. Similar to how an insurance carrier underwrites and creates a premium for every design firm, each firm also has a different risk profile based on their unique characteristics:

 

 

• Background
• Staffing
• Experience
• Services
• Claim activity
• Project types
• Clients
• Geographic region
• Risk Management
• Business Practices
• Other features

Another way of thinking of a risk profile is similar to a physical examination performed by a doctor. The doctor will examine each individual in similar areas such as – blood pressure, blood work and physical evaluations in determining someone’s overall health. A risk profile does the same thing in assessing key categories of risk for a design firm. When I have evaluated “higher performing design firms” the first step they apply is an assessment. With this information, higher performers make decisions for improved performance and risk reduction to ensure effective practices are applied for meeting the business needs of the firm, clients, and projects.

Industry Risk and Relevance to Your Firm

One important point for managing risk is assessing the softer side of a design firms practice – business and practice management efforts. These areas routinely drive a majority of claims and litigation against design firms, approximately 60 – 75%. Do all design firms apply the same business and practice management efforts? Obviously the answer is no. Design firms apply various methods, techniques, practices, etc., with some more effective than others. With that said, a one-size fits all risk management approach is not very effective in addressing the specific needs of any design firm. Continue reading “How Effective is Your Risk Management Program?”

Law BooksYes, 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…

constclaim

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…”

PNN_1409The 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”

constrobservationConstruction observation is a powerful weapon for architects and engineers (A/E) in their risk management arsenal. Certain clients understand the benefits when A/E firms offer construction phase services. However, driven by slow economic conditions, many clients are asking firms to do more, with less, including reducing or eliminating construction phase services. Other clients decide they will administer the construction contract themselves or decide to use a third party instead of the A/E firm. Clients have also held the A/E to a higher standard of care when providing construction observation services. How do these actions affect A/E firms?… It significantly increases the A/E’s risk and liability exposures.

Construction Phase Risks

Details in design documents cannot anticipate every contingency that may occur during the construction phase. If the A/E firm of record is not retained to provide clarification of the plans and specifications the risk of misinterpretation of the contract documents increases. Bad decisions can lead to project confusion, delays, increased costs, disputes and claims between the owner and the A/E.

The exposure of the A/E is increased due to certain owners and contractors asserting that the designer has a similar responsibility of the contractor for discovering all defects on the project. Based on this distortion and unrealistic expectation of construction observation services, owners and contractors have stated the A/E should be a guarantor of the contractor’s work. These expectations dramatically increase the A/E’s standard of care and risks associated with construction phase services. Court decisions have ruled in Owners’ favor holding that the A/E has a duty to guard the owner against all non-conforming work on the project, although much of that work was completed when the firm was not present on-site. Members of the plaintiff’s bar continue efforts to hold the A/E accountable for this higher standard of care for construction phase services. Continue reading “Construction Observation: Important Risk Management Service”

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

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

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

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

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

Waiver of Subrogation in General in Construction Contracts

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

malaga_facade_acamp

The following is a re-post from the Southeast Construction Law Blog:

Contractors, subcontractors, and A&E firms all face differing levels of liability on construction projects. Managing that exposure is a key to maintaining profitability and ensuring your business is protected.

One issue I consistently see in my practice is companies taking too much liability for their scope of work on a project. For example, what should the liability of a subcontractor be who has a small $25,000 subcontract on a $15 million project? Should the subcontractor be liable for any and all damages?

Many subcontract agreements state that subcontractors are responsible for “any and all costs” caused by a subcontractor’s delay or interference with any portion of the work. While each party should be liable for damages it causes, this determination is never as clear as it seems.

General contractors (and sometimes owners) often control the timing, means, and methods of how a subcontractor performs its work. In those situations, it is difficult for me to explain to a subcontractor that it is liable for everything it does on site. Even so, many subcontractors’ feet are held to the fire for delay costs in the hundreds of thousands or millions of dollar range when their contract was initially very small.

Architecture and engineering firms face a similar dilemma. Many times A&E firms are brought into lawsuits in the millions of dollars when their scope of work may have been small. I have seen a civil engineer sued for $12 million when it performed a $1,600 staking job on a project.

In addition, A&E firms face a different challenge. Even if an architect or engineer prevails on the claim, the A&E firm has likely spent thousands of dollars in attorney’s fees, all chargeable to the A&E under the deductible in the Professional Liability Insurance policy. Continue reading “Are You Accepting Too Much Liability on Your Construction Project?”