Risk Management Archives - Page 5 of 13

Subcontract Termination: The right business decision?

By Lynda

Sometimes the grounds for termination are absolutely clear. And sometimes several legal options are available. But when preparing to terminate a subcontract, there’s one more question to ask: Is this the right business decision? We turn to Burns Logan’s Southeast Construction Law Blog for the answer.

The following is an excerpt from a September 2014 post on the blog titled Subcontract Termination: Not for the Faint of Heart:

After a few weeks of poor performance by the stucco subcontractor, my client and I sat down to determine all the possible avenues to resolve the issues. The first thing we did was pull out the subcontract which controlled the stucco subcontractor’s work. We wanted to be sure that the subcontract included all the necessary provisions to allow my general contractor client to remedy the situation. Some of the common default provisions in subcontracts include:

failure to prosecute the work promptly and with due diligence;
failure to prosecute the work in a workmanlike and safe manner;
failure to supply proper supervision;
failure to properly staff the job;
failure to supply materials and equipment of proper quality and quantity;
failure to promptly correct defective or deficient work;
failure to pay sub-subcontractors or suppliers;
failure to maintain the project schedule as directed by the contractor; and
failure to submit proper progress and completion schedules.

We found that this subcontractor had violated many of the standard default provisions in my client’s subcontract. Therefore, we felt we had the proper authority to issue notices of default.

Continue reading “Subcontract Termination: The right business decision?”

a/e ProNet’s Fall Meeting Kicks Off in Chicago

By Lynda

Dozens of a/e ProNet members from across the country are gathering in Chicago this week for the annual fall meeting. They will be joined by representatives from several top tier professional liability insurance companies and a few major design industry organizations, including the AIA, NSPE, and ACEC.

Over the course of three days, members will receive presentations from the following insurance carriers: Beazley, Ironshore, HCC, Victor O. Schinnerer, Axis, Catlin, Hanover, RLI, All Risks, Liberty, Travelers, Navigators and Arch. These presentations will help inform the specialist brokers of a/e ProNet about industry trends, policy language changes, new coverage opportunities, and the like. It will also give our members a chance to ask questions and make suggestions pertinent to their own clients.

Along with insurer presentations, there will also be ample opportunity for the brokers to network with one another, alerting the group to trends around the country and problem solving in the collective.

To open the week, the Board of Directors will meet, and to close, Kent Holland of Construction Risk will present to the membership on the second edition of a/e ProNet’s Risk Management and Contract Guide for Design Professionals.

Construction Observation: Important Risk Management Service

By Lynda

Construction 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”

Stirring the Pot: Workplace Drug Policy Implementation in the Era of Legalized Medicinal and Recreational Marijuana

By Lynda

Two states have legalized the recreational use of marijuana within the last year, and it feels like the trend will continue to unfold, too. How does the state-level legalization of a federally-restricted of a narcotic impact workplace drug policy? Our April 2014 Guest Essay, authored by Stephanie Rawitt of Clark Hill, seeks to answer this very question for you. The following is an excerpt of that essay. You can download the full PDF of the newsletter for free from our website.

In a wave of change that children of the 1960s only dreamed, debated and theorized about, almost half of the states in the United States have now passed laws legalizing the controlled distribution of medicinal marijuana, and two states have even legalized the sale of recreational marijuana. While this could truly be the “Dawning of the Age of Aquarius” straight out of the Broadway musical Hair, these new laws raise a variety of questions for employers who have drug screening programs or any type of drug-free workplace policy. The big question for employers is – are their drug-free workplace policies still enforceable? More specifically, what happens when an employee or job applicant with a prescription for medical marijuana fails a drug test? Will employers who discipline employees using medical marijuana who fail drug tests face liability under the Americans with Disabilities Act or their respective state anti-discrimination laws? While in one sense, there are easy answers to the questions raised by the states’ legalization of marijuana, there are many grey areas which require employers to understand their state and local laws and also to pay attention to the landscape of this evolving issue.

For the most part, courts have been affirming an employer’s right to enforce its drug-free workplace policies. Despite the increasing rise of the states’ respective medical marijuana laws and the legalization of recreational marijuana in Colorado and Washington, marijuana possession and use is still illegal under federal law. The Controlled Substance Act (CSA) categorizes marijuana as a Schedule I drug, which means that it has a strong potential for abuse and is not currently recognized by the federal government as an acceptable medication. See, 21 U.S.C. §§811-812. In 2005, the U.S. Supreme Court held that the possession of marijuana is illegal under the CSA regardless of whether a state allows the use of medical marijuana. Gonzales v. Raich, 545 U.S. 1 (2005). Plainly, with reference to this issue, federal law will pre-empt state law where there is a conflict between the two.

Given that marijuana use and possession are illegal under federal law, employers that have federal contracts or are subject to federal drug-free workplace regulations should not need to change or modify their existing policies. These employers should continue to comply with applicable federal law, even if they are located in a state where marijuana has been legalized for medicinal or recreational use. Continue reading “Stirring the Pot: Workplace Drug Policy Implementation in the Era of Legalized Medicinal and Recreational Marijuana”

How Does California Supreme Court Beacon Ruling Affect Architects?

By Lynda

The following is an excerpt from a recent Gordon & Rees LLP article entitled California Supreme Court Holds Principal Architects Owe Duty of Care to Future Homeowners:

On July 3, the Supreme Court of California published its decision in Beacon Residential Community Assn. v. Skidmore, Owings & Merrill. In short, the court concluded that prime architects designing residential buildings owe a duty of care to future homeowners even though they do not actually build the projects themselves or exercise ultimate control over their construction.

Of importance, Beacon involved a demurrer at the trial court level meaning that, on appeal, the Supreme Court was required to accept the facts pled in the plaintiff’s amended complaint as true. This included the allegation that the Beacon project’s designers provided their services “knowing that the finished construction would be sold as condominiums.” It also was claimed that the defendants played an active role throughout the construction process, including coordinating efforts of the design and construction teams, conducting weekly site visits and inspections, recommending design revisions as needed, and monitoring compliance with design plans. For their various services, the designers were reportedly paid $5 million. The plaintiff alleged that negligent design work resulted in several defects, including extensive water infiltration, inadequate fire separations, excessive solar heat gain, structural cracks, and other safety hazards…

Although not a total loss for the design community, Beacon will have the effect of expanding architects and engineers (A&E) liability to a broader spectrum of claimants and generally keep A&E defendants in lawsuits for longer periods of time.

For an explanation of the court’s decision, including a concise summary of the affects of the ruling on Architects and Engineers, visit the original Gordon & Rees post by attorney Dion N. Cominos.

Complex precedents like this are just one of the reasons why A&Es are best served by consulting specialist brokers about their Professional Liability insurance needs. Does your current professional liability insurance policy include pre-claims assistance? How about the latitude to choose your own council in the event of of a claim? Call your local a/e ProNet Broker and get answers to these questions today.

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

By Lynda

An 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?”

Are you an SDA Certified Design Firm Administrator?

By Lynda

We’re especially proud of our partnership with the Society for Design Administration (SDA). Our members are well aware of the important role office administrators play in design firms, particularly when it comes to insurance matters. Today, we want to congratulate Penny Nelson, Director of Finance for Douglas Pancake Architects in Irvine, California, on passing the SDA Certified Design Firm Administrators exam! Ms. Nelson is the Orange County SDA’s Chapter President.

What is CDFA?

The SDA, the recognized leader in education for best practices in the A/E/C industry, offers a credential that recognizes your achieved administrative and management expertise, the Certified Design Firm Administrator (CDFA) designation. The CDFA credential is a voluntary certification designed to elevate the professional standards in design firm management and administration and contribute to the firm’s organizational growth and maturity through better practices in firm management. The credential comprised by the SDA’s Certification Program distinguishes and supports the roles performed by the spectrum of administrators and managers in the A/E/C firm. Furthermore, enhanced marketability and increased earning potential are just two of the many benefits CDFA certification provides.

CDFA certification recognizes an individual who has met a rigorous standard of experience and expertise in design firm management and administration and who has demonstrated their knowledge of the practice and related disciplines through a thorough examination of management and administrative competencies. This individual further adheres to the ethics and responsibilities of the profession as outlined in the SDA Code of Ethics.

Last year, we announced that a/e ProNet will pay one half of a new SDA member’s dues if that member’s insurance broker belongs to a/e ProNet… Chapters can partner with the local broker and reach out to principals and managers in their network. How about that for a good deal! Contact your local a/e ProNet broker today…

Shout-out Credit:

Alicia K. Igram, AAI, VP & Branch Rep
Design & Consulting Liability Specialist
IOA Insurance Services – Aliso Viejo, CA
Email: Alicia.Igram@ioausa.com / Phone: 949-680-1789

Important Protection for Licensed Individuals

By Lynda

We were excited to see that AIA Florida picked up this timely article by Mark Jackson of Jackson Collinsworth Johnson, an a/e ProNet member. Hope you find it helpful, too!

There are two important contract clauses that design professionals should include with every client contract. The first clause provides protection to individuals and the second limits the firm’s liability.

Individual Protection

The first clause we recommend gives individual protection for your licensed professionals. In 2013, the State of Florida signed a law relating to design professionals known as the Fairness in Liability legislation. Beginning July 1, 2013, design firms are now able to negotiate contracts that protect their professional employees from being sued individually by their clients.

The new law grants design professional employees immunity from liability for economic damages resulting from negligence occurring during the course and scope of a professional services contact. The law does require that the design firm maintain professional liability insurance as required under the contract.

The new law also extends to individuals the protection of contractual limitation of liability clauses. This comes four years after the courts ruled that individual professional employees were not protected by limitation of liability clauses in a contract. (Florida appellate court case Witt v. La Gorce Country Club, Inc., 34 Fla.L., Weekly D1161a)

Design professionals should take advantage of the benefits of this new law. Your contracts should be amended to include language that an individual employee cannot be held liable for negligence. The law has five conditions for this protection to apply:

1. The contract is made between the design firm and the client.
2. Individual employees are not to be named as a party to the contract. All professional services contracts need to be made between the client and the business entity.
3. The design firm must maintain Professional Liability insurance, as required by contract.
4. The contract contains a prominent statement, in uppercase font that is at least five point sizes larger than the rest of the text, that an individual employee or agent may not be individually liable for negligence.
5. Any damages are solely economic in nature and the damages do not extend to personal injuries or property not subject to the contract.

To continue reading, download the PDF here…

Are You Accepting Too Much Liability on Your Construction Project?

By Lynda

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?”