Professional Liability Archives - Page 3 of 10

How Effective is Your Risk Management Program?

By Lynda

Many 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?”

Award-Winning Scorpion House Lists for $5.5M

By Lynda

Undoubtedly one of the most dramatic homes in the American Southwest, the so-called Scorpion House has recently been put up for sale in Scottsdale, Arizona. Designed by a/e ProNet client Eddie Jones of Jones Studio in 2001, the 4,700-square foot Scorpion House blends “poured concrete, glass and oxidized titanium panels into a curvilinear plan that spans the desert and boulder outcroppings in an organic form to protect the natural setting.” It holds an impressive roster of design awards, including ‘Gold, Architecture under 5,000 Square Feet’ by The Arizona Home Book Design Excellence Awards. The property has also been featured in Architectural Digest and Desert Living Magazine.

See more beautiful photos of this luxurious private residence on the Xtravaganzi blog.

Shout-out Credit:

Jeff Gerrick
Professional Underwriters of Az., Inc.
Scottsdale, AZ
Ph: 480-483-0440

Gearing up for EdSymposium15

By Lynda

Design firms depend on a set of very important people to keep their businesses running smoothly: office administrators. These folks “manage, market, advance, streamline, protect, and regulate firms in the A/E/C industry,” according to Natalie Newman, current President of the Society for Design Administrators (SDA).

At the SDA’s upcoming national meeting in Golden, Colorado–EdSymposium15 (October 8-10, 2015)–a/e ProNet will be in active attendance. On Friday, a/e ProNet President Eric Moore, CIC, of Moore Insurance Services, will make a keynote presentation:

Your Application Matters – How to Influence Premiums for the Better

It is important to understand what underwriters and insurance carriers look for when renewing a professional liability application/submission. In this presentation, attendees will learn how to better understand the underwriting process, how information is presented on the application, and improve their understanding of limit and deductible options when making the decision to purchase coverage.

Eric Moore specializes in providing risk management and insurance services to Design Professionals, including Architects, Engineers, Environmental Consultants and Land Surveyors.

a/e ProNet will also sponsor lunch on Friday, and our Executive Director, Dave Johnston, will be present to answer questions about our organization and how we can be of service to design administrators.

Lots of other exciting topics and activities are on the conference agenda, including a talk on Cyber Security and a chance for attendees to go rock climbing! We wish all SDA members safe travels and an enjoyable conference.

Prevailing Party Perils: Attorney’s Fees’ Clauses in Professional Service Contracts

By Lynda

In 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.

Insurance for Design Professionals vs. General Contractors

By Lynda

When it comes to the world of construction contracts, there is no one-size-fits-all solution regarding insurance. The Design Professional’s insurance policies cannot and should not anticipate the needs and risks of a General Contractor, for example. This comes up all the time at the beginning of contract negotiations. You can sidestep disputes further down the road if you understand the way your insurance policy and carrier will respond in the event of a claim. Here are a few Frequently Asked Questions:

The General Contractor has requested to be named as an “Additional Insured” on my professional liability policy. Can I accommodate this request?

It is not a good idea to name the contractor as an additional insured in the sub-consultants design E&O policy. The principal reason involves the “insured vs insured” exclusion found in virtually all design E&O policies. If the contractor believes he has a cause of action against his sub-consultant design firm, this exclusion will eliminate coverage for both the contractor and the design firm.

How can the General Contractor protect themselves?

The General Contractor may purchase “Contractor’s Professional Liability insurance.” This will protect the General Contractor from vicarious liability claims from third parties and also solves the problem of the “Insured vs.Insured” exclusion that would apply if the contractor would bring an action against the sub-consultant design firm, when named as an additional insured. Another benefit is a separate set of insurance limits. The General Contractor would have their own set of insurance limits that would not be subject to dilution or reduction from other claimants against the design professional’s errors & omissions policy covering their general practice.

Why would the General Contractor need Professional Liability coverage?

The General Contractor has the same “Vicarious Liability” for the negligent acts, errors or omissions of their professional sub-consultants as they do for the non-professional subcontractors. The General Contractor cannot rely solely on the hold harmless indemnity clause in the contract document. The hold harmless may not be enforceable in certain jurisdictions because of the language of the indemnity clause. The Sub-Consultant may not have sufficient insurance or their policy limits may be reduced or exhausted from other claims. The policies may be cancelled by the carrier giving notice or for non-payment of premiums. The General Contractor is then left with a false sense of security if they rely on the general liability insurance of the sub-consultant, which excludes professional design activities and responsibilities.

If you had more questions about this common issue, call your local a/e ProNet broker.

How should a design-build project be structured?

By Lynda

Risk management best serves design professionals when it’s put in place prior to the acquisition of risk. Not damage control strategies, but damage avoidance strategies. In the case of design-build projects–arguably some of the riskiest in the business–this preemptive management of risk should include a number of questions asked by all parties involved. Among those questions: How should the design-build project be structured?

At Victor O. Schinnerer’s most recent Annual Meeting of Invited Attorneys, Jonathan C. Shoemaker, of the Lee & McShane law firm, answered this question and others based on his own research “on the contractual and professional risks of participants in design-build projects.”

According to Shoemaker, there are many ways “to structure design-build teams, including teaming agreements, joint ventures, partnerships, and newly-formed companies owned by the design-build team.” The following is an excerpt from a post on the Schinnerer website:

[Shoemaker] defines the organization of a design-build team as either a vertical relationship (e.g., a traditional prime contractor/subcontractor organization) or a horizontal relationship. And he points out that the vast majority of design-build teams are contractor-led, with the design firm serving as a subcontractor to the contractor.

According to Shoemaker, a horizontally structured relationship is where a contractor and a design firm come together to form a joint venture, a partnership, or a new company to provide fully integrated design-build services. He defines the most common horizontal structure, the joint venture, as “a business undertaking by two or more persons engaged in a single defined project.” A joint venture structure typically includes:

joint control over the joint venture’s decisions (as opposed to the prime contractor having control);

liability for the joint venture’s losses (as opposed to liability for only the design professional’s losses);

and profit sharing (as opposed to only the profit earned under the design agreement).

Shoemaker also examines the risks to the design professional on a design-build project and discusses how the risks vary depending on the design firm’s involvement.

Visit the Schinnerer website to read the entirety of the post.

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®

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”