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.

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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?”

scalesWhere does professional liability end and personal liability begin? For design professionals, the line can sometimes be fuzzy, especially with regard to personal injury claims.

Now, Florida’s lawmakers have taken steps to limit liability in for design professionals in these cases.

According to a recent announcement by the legal firm of Smith, Currie & Hancock LLP:

 

“On April 24, 2013 Governor Scott signed Senate Bill 286 into law creating section 558.0035, Florida Statutes. This new law grants individual design professionals employed by a business entity or an agent of the entity immunity from liability for economic damages resulting from negligence occurring within the course and scope of a professional services contract under the following conditions: (a) the contract is made between the business entity and a claimant or another entity for the provision of services to the claimant; (b) the contract does not name an individual employee or agent as a party to the contract; (c) the contract prominently states that an individual employee or agent may not be held individually liable for negligence; (d) the business entity maintains any professional liability insurance required under the contract; and (e) any damages are solely economic in nature and do not extend to persons or property not subject to the contract. The law takes effect on July 1, 2013 and does not state that it is retroactive…

This new law erodes Florida’s common law which has allowed professional negligence claims against an individual design professional based on the professional’s violation of her duty of care to those who may be foreseeably injured. Florida’s common-law imposes a duty of care on all individual professionals that exceeds the duty of care of the general public. Professionals, such as doctors, lawyers, accountants, and design professionals, have always been held to a higher standard of care and associated individual liability for professional negligence. This new law will afford design professionals protections that other professionals do not enjoy.”

For the full, detailed announcement, visit the Smith, Currie & Hancock website.

Shout-Out Credit:

Meade Collinsworth
Collinsworth, Alter, Fowler & French, LLC of Miami Lakes , FL
Email: mcollinsworth@caffllc.com / Phone: 305-822-7800