Tag: ProNetwork News

Managing Employee Benefits: A Three-Legged Stool of Protection

By Lynda

PNN_1501For many design firms, the ability to offer and maintain competitive employee benefit programs continues to be one of the keys to attracting and retaining the best available talent.  Yet, the regulatory and legal environment within which these benefit plans are being designed and administered is more complex than ever.  Not only are there ERISA issues, but there is a literal alphabet soup of COBRA, FMLA, HIPAA, etc. With this greater complexity and heightened scrutiny comes risk:  risk for the company itself, and the executives and administrators responsible for overseeing and administering the benefit plans.

The good news is that the risks are manageable and design firms with employee benefit programs can take advantage of a three-legged stool of insurance protection – Employee Benefits Liability Insurance, ERISA Bonds, and Fiduciary Liability Insurance.  Many executives and administrators are confused about what each of these covers and whether or not they need them. This article will explain how each coverage evolved and what specific exposures they address.  We also examine some risk scenarios based on actual litigation.

Employee Benefits Liability Insurance

Employee Benefits Liability insurance (EBL) very simply provides protection against claims arising from errors in the administration of employee benefit plans.  This coverage was developed in the mid-1970s largely in response to exposures that arose from the 1962 court decision in Gediman v. Anheuser Busch.  In this case, an employer was held accountable to the estate of a former employee for providing incorrect information to the health insurance company, which then in turn denied the employee’s claim.  Thus, EBL insurance addresses claims arising out of errors or omissions in the administration of benefit plans. Three typical exposure scenarios covered by EBL insurance include:

  1. An employer failing to properly enroll an employee for health insurance coverage, resulting in a denial of coverage.
  2. An employer not providing an employee with the appropriate COBRA information after termination, resulting in the ex-employee being unable to continue participating in the health insurance plan as required by law.
  3. An employer incorrectly calculating the amount of an employee’s pension benefit so that the employee decides to retire early only to find that the amount is much less.

Continue reading “Managing Employee Benefits: A Three-Legged Stool of Protection”

Construction Phase Services: Considerations for a Successful Outcome

By Lynda

PNN_1407The 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”

The Design Professional in the Age of BIM: Things that change; things that don’t.

By Lynda

PNN_1405Seen any changes the past thirty years in the delivery of professional design services?  Sure, you have—particularly in the area of construction documents. Raised stools and drafting tables, pounce, and lead-darkened calluses on the middle finger of the draftsmen have, for the most part, yielded to CAD. Although CAD’s promise of error-free drawing may have proven elusive, many of its other promises have been fulfilled. Some even appear understated in hindsight—in part because CAD and the Internet seem to have been made for each other. Their combined effect reduces trying to list all the ways CAD has changed project delivery to a futile exercise.

Like CAD in the ‘80’s, BIM seems to hold similar promise today—a fact not lost on contractors, A/E’s, and project owners alike. Digital models are more-and-more often offered or requested as “deliverables.”  And multiple models for the same project are not uncommon—as building team participants explore their usefulness at various stages of design and construction. Some models are used much like enhanced CAD construction documents, provided and controlled largely by the A/E. But many incorporate data contributed by sources other than licensed design professionals, including suppliers, fabricators, contractors, and subs. Not surprisingly, many contractors and construction managers view BIM as a means for carving out an increased share of the project delivery pie—and are taking full advantage of it as both a marketing and performance tool. Some of them have even become the primary creators and custodians of digital models. Of course, that is not altogether unnatural. After all, it’s hard to ignore a tool that can show what will be built—and also to be useful in actually building it. Continue reading “The Design Professional in the Age of BIM: Things that change; things that don’t.”

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

By Lynda

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?”

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

By Lynda

PNN_1312This 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”

Insurance 102: Property Coverages for Architects & Engineers

By Lynda

pronetworknews_august2013This 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”

Insurance 101: The Things You Always Wanted to Know About Liability Coverage But Were Afraid to Ask

By Lynda

pronetworknews201305This issue of ProNetwork News is meant to serve as a basic reference guide to the liability insurance coverages typically purchased by design firms.

Let’s start with a key definition.

CLAIMS-MADE vs. OCCURRENCE

Most liability policies are written on an Occurrence policy form. Coverage is triggered on the date of the “occurrence” (defined as an accident, including continuous or repeated exposure to substantially the same general harmful conditions, causing damage). A claim asserted against the insured may be brought well after the occurrence.

In contrast, professional liability claims are often brought many years after an alleged act, error or omission. Insurance companies had to evaluate their exposures and better determine the premium necessary to cover such risk, so the Claims-Made policy form was created. The coverage trigger is the date the claim is made, and coverage applies only to alleged wrongful acts that happened after the retroactive date of your policy. Once the policy is canceled or not renewed, all coverage will cease.

Today, virtually all professional liability policies are provided on Claims-Made forms. In order to establish coverage, three conditions must be met:

  1. a policy must be in place at the time a claim is made
  2. the “retroactive” or “prior acts” date on the policy must be dated at least as far back as the services giving rise to the claim were provided
  3. notice must be provided to the insurer within the policy term or during a specified grace period

The advice of your insurance advisor is essential when reviewing Claims-Made policies with respect to mergers, acquisitions, splits and retirement.

This has been an excerpt of the May 2013 issue of ProNetwork News. The newsletter goes on to deal with all types of liability coverage, including Professional Liability Insurance, Commercial General Liability Insurance, Owners and Contractors Protective Liability Insurance, Workers’ Compensation and Employers Liability Insurance, Umbrella Liability Insurance, Employment Practices Liability Insurance, Directors and Officers Liability Insurance, and many more! Download the full PDF version of the newsletter here. Continue reading “Insurance 101: The Things You Always Wanted to Know About Liability Coverage But Were Afraid to Ask”

Making the Grade: Testing Design Professional Indemnity Obligations

By Lynda

ProNetworkNews_2013AprilIn•dem•ni•fy Verb.

• Compensate (someone) for harm or loss.
• Secure (someone) against legal responsibility for their actions.

Imagine a case where an engineering firm was found to have had an expensive duty to defend claims asserted against a developer, even after the engineer’s performance was judged not to have violated the professional standard of care. That was the decision three years ago, in the California Court of Appeals in UDC – Universal Development L.P. v. CH2M Hill. In fact, that case extended another one, decided two years earlier in the California State Supreme Court. (Crawford v. Weather Shield Mfg., Inc.). That decision held that the duty to defend was incurred the moment that the indemnitee (the party that the design firm was contractually bound to indemnify) tendered its defense to the design firm.

Candidly, the indemnity provision underlying the UDC v. CH2M Hill decision was long and rambling, repetitive, and ambiguous. That’s what opened the door to the expansive (and expensive) legal interpretation. The clear message to design professionals was: if you do not want to take on the extensive defense and indemnity obligations implied or required by statute and case law, you must be clear. Further, the longer and more confusing an indemnity provision is, the more likely it is to receive an expansive reading.

The point of this article is to provide design professionals with a simple, three-step evaluation and corresponding “scoring” model to evaluate and improve the indemnity obligations it receives. Continue reading “Making the Grade: Testing Design Professional Indemnity Obligations”

Project Insurance: Benefits and Cautions – Part 2 of 2

By Lynda

ProNetworkNews_2013MarchThe March 2013 issue of ProNetwork News is the second installment of a two-part article; the author, Tim Corbett of SmartRisk explains the origins and principles of project coverage and introduces the reader to two of the four main types of Project Insurance. For a recap of the first part, including details about types 1 (Project Professional Liability Insurance) and 2 (IPD Project Specific Insurance), download the full March issue, or, better yet, download the February 2013 newsletter here.

Now, let’s examine the remaining three types of project coverage.

3. Project Specific Insurance Limits

Sometimes, contracts demand that design professionals carry a higher limit than they usually do. This can occur on any kind of project, but is more common on larger, higher risk projects, and more recently, on public ones. One of the more common strategies for obtaining increased limits for a project is through a Project Specific Insurance Limit. This is provided by endorsement through your current practice policy insurance carrier.

Benefits and typical features of Project Specific Insurance Limits:

  • Provides a higher limit for the firm, for a specific project only.
  • Can be more cost effective than raising the limits on the entire practice policy.
  • Makes the cost of the project-specific limit a reimbursable expense.

Cautionary Points and Tactics:

Having a project specific increased limit may not always be the best strategy, and it may not even be available from your practice policy carrier. From an insurance company’s perspective, comparing construction costs to policy limits is part of the underwriting process. Construction value and requested limits may not be in line with the insurer’s potential exposure: those higher limits requested could place a target on the design firm’s back. The insurer doesn’t want to provide the higher limits that could be used as a cost recovery strategy.

  • Ensure that requested limits are in line with exposures and construction costs. For example, is it necessary to require a $5 million limit of professional liability insurance from a firm performing services on a $20 million project?
  • Contact the contract administrator, and state that your firm normally carries a lower professional liability limit than requested, and that it is consistent with industry practice. Inquire if your current limit will be acceptable.

* Include language similar to the following in your contract:

“The expense of any additional insurance coverage or limits requested by the Owner in excess of that normally carried by the firm shall be a reimbursable expense paid by the Owner.”

To find out more about types 4 (The Wrap-Up Policy) and 5 (Owner Protective Insurance Policy or OPIP), download the full March 2013 issue from our website.

About the Author: Timothy (Tim) Corbett is Founder and President of SmartRisk, a Pasadena, CA based consultancy with over 25 years of experience providing risk management and performance management solutions to Design and Building Professionals. Mr. Corbett holds a BS Degree in Security & Risk Management, MS Degree in Management; a degree in Environmental studies as well as concentrated studies in Architecture Design and is LEED accredited. For more information on this or other topics, visit the SmartRisk website or email Tim at tcorbett@smartrisk.biz.