Don’t Assume A Design Role Unless You’re The Designer

George M. Nicholos | Vandeventer Black LLP | April 4, 2018

Recent weather conditions highlight the importance of avoiding unintentional design responsibility. This first quarter of 2018 has seen persistent periods of wind-driven rain; which often expose building envelope weaknesses. Uncontrolled rainwater penetration, condensation, and moisture related damage commonly result and threaten both structural integrity and building envelope performance. Indeed, virtually 90 percent of such sources of intrusion are uniquely associated with only 1 percent of the interfaces between materials or building components in the building envelope.

Frequently failures of this sort result from the improper integration of related building components, such as windows, doors, and flashing from the design phase of a project. Things such as reduced fees and accelerated schedules can lead to less exhaustive detailing by the designer. But despite this growing trend, such exhaustive detailing is important, and in many cases necessary.

For example, Section 107.2.4 of the International Building Code mandates that construction documents include exterior wall envelope details, including flashing, intersections with dissimilar materials, corners, end details, control joints, intersections at roofs, eaves or parapets, means of drainage, water-resistive membrane and details around openings.

Yet, despite such requirements, and sound practices, some projects get released for bidding with increasingly less information. Instead, those designs attempt to shift design risk to bidding contractors (and their subcontractors) through the shop drawing phase.

The result can be disastrous, and expensive. Poorly conceived submittals or attempting to resolve the designer’s intent in-house can and often results with missed intent and requirements; resulting in widespread leaks and resulting damages to the building and other property. To avoid that, contractors and subcontractors must avoid proceeding without clear, documented direction from the designer.

Savvy contractors negotiate contractual terms to preclude such risk allocation to them, but sometimes that cannot be negotiated. If not, contractors need to proactively address related matters during the submittal process; at the earliest possible stage; and unsavvy contractors that proceed with the mentality of “this is how we always install these components,” proceed at their own peril.

One of the main ways to address unclear designs is effective use of the Request for Information (RFI) process. If there is any question, RFIs regarding design intention, clarifications, and instructions are appropriate for requesting specific guidance from the designer and/or owner. Follow the RFI process strictly, retain all records; and memorialize related discussions.

Additionally, follow-on contract requirements incorporating additional design input received should be formally entered as a contract requirement. Virtually every construction contract includes a requirement for written changes only, executed by authorized contract agents only. Without strict compliance with those requirements, unintentional risks can get assumed regarding not only performance but also design; along with the additional liabilities that follow.

Protect Against Design Errors With Owners Protective Professional Indemnity Coverage

Joseph Nawa | Construction Executive | February 28, 2018

Prior to the devastation caused by Hurricanes Harvey, Irma and Maria, the AIA Consensus Construction Forecast had predicted “slower growth for the construction industry for the remainder of 2017 and through 2018.” But, given the hundreds of billions of dollars in damages caused by these horrific events, Mark Zandi, chief economist at Moody’s Analytics, estimates a lift to the economy through the rebuilding of these areas. This, of course, is dependent on insurer funds and the amount of aid offered through government sources.

Nonetheless, the process will be costly, timely and exhaustive. Under such circumstances, speed is a necessity. In addition to being drawn into the earliest stages of the project development cycle, the services of construction professionals have merged so intensely that even their “consultative advice” have produced exposures in “collaborative” environments rife with liability.

A challenge for contractors in today’s design/build marketplace is securing professional liability insurance policies that will not only manage the risks associated with their own errors and omissions, but also the problems caused by designers and others contracted to work on the project. However, this too is not very easy. Such policies when purchased by contractors can be exceedingly cost prohibitive.

On a project basis, Contractor’s Professional Liability (CPrL) programs are still a costly solution even though policy forms have never been broader and premiums lower. While there are more carrier alternatives than a year ago, there are still only five or six carriers willing to offer project coverage (with the ability to include protective and rectification/mitigation coverage) on a primary basis for large ($500,000,000 or higher) applications. In addition, on larger projects coverage customizations have to be made with certain project delivery methods like Integrated Project Delivery (IPD) and Public Private Partnerships (P3); when the design professional becomes part of the primary named insured; and/or design professionals are partnered in joint ventures to pursue work.

As a result, Owners Protective Professional (OPP) has become a viable option for filling coverage gaps and protecting both owners and the contractors they hire from the costly consequences resulting from design and construction problems. Designed primarily to protect owner assets, OPP provides first-party indemnity to the owner/developer (insured) for damages incurred as a result of the negligent acts, errors and/or omissions of the design professionals they hire. This includes coverage that sits beyond the excess of the design professionals’ professional liability insurance limit. Under an additional coverage part, defense expenses are also provided to protect owners from third-party actions arising from design professional’s errors.

Furthermore, this supplemental form of protection has become popular among owners and contractors alike, who are keenly aware of the potentially catastrophic effects design errors can have on their projects. Typically, many design professionals buy lower limits of insurance. This was exemplified by a recent American Council of Engineering Companies (ACEC) survey, which found that the median per claim limit of liability purchased for all member firms generating $50 million in annual fees or less is only $3 million. It also revealed that the average per claim limit of liability purchased by all such firms in the two high hazard classes of engineering – geotechnical and structural – was under $2.5 million. Subsequently, many owners and developers have begun supplementing the limits of design professionals with OPP limits of $10 million or more on larger projects valued at $100 million or higher.

In addition, OPP coverage forms from one carrier to the next have become fairly consistent over the years. Rates have actually decreased as result of the additional entrants in the OPP marketplace. In fact, owners can receive a 40 to 50 percent savings when compared to a primary project professional liability for the design team, while securing a limit of liability that protects their best interests rather than the interests of the design professionals.

As for the coverage itself, OPP terms continue to morph, but for the most part, remain stable. For example:

  • Self-Insured Retention (SIR) coverage terms have evolved to apply to the defense portion of the program, whereas in the past it applied to the indemnity coverage part as well the minimum insurance requirement (MIR) if it was not met.
  • Professional service definitions have been expanded to track closer with typical architect/engineer (A/E) definitions like the inclusion of building information modeling (BIM) and technology services.
  • The defense coverage restriction for third-party claims on habitational (commercial or residential condominium) projects has been removed by some carriers. This restriction was driven by the continued litigation associated with construction defects on habitational projects in certain regions of the country.
  • Recent policy form changes have addressed the specific needs of design-builders. A few have even developed specific OPP policy forms to reflect the contractual relationship between the design-builder and the owner, rather than the older more dated forms that only insured the owner for damages incurred by design professionals (DPs) directly under contract to the owner.
  • Pollution Legal Liability (PLL) coverage for pollution (pre-existing and unknown) on, at, under or emanating from the property on which the project is being built is now offered by several carriers. This provides the insured/owner the added benefit of an insurance product in the event construction activities only uncover and do not create environmental issues.

Although still an undersold and/or under-purchased product, OPP has become a very cost-effective method for insuring against catastrophic loss. Considering the size of the construction industry and the expense associated with insuring design teams and contractors on a project basis, OPP is continuing to expand in terms and use as owners become keenly aware of the ever-growing risks associated with design professional errors in a market increasingly driven by design/build contractual agreements.

Florida Supreme Court Confirms 558 is Not a Civil Proceeding, Allowing Contractors and Design Professionals to Resolve Defect Disputes as Intended by the Legislature

Brian A. Wolf and Joseph R. Young | Smith Currie & Hancock | December 14, 2017

Contractors and design professionals are entitled to notice of alleged defects in their work and the opportunity to fix them without intervention by insurance companies and needless litigation. Today, Florida’s Supreme Court in Altman Contractors, Inc. v. Crum & Forster Specialty Insurance Co., No. SC15-1420 (Dec. 14, 2017), held that the Florida Statute Chapter 558 dispute resolution process is not a civil proceeding. This means that contractors and subcontractors who receive a 558 demand are free to participate in the notice and right to cure process without notifying their insurers of non-covered claims for construction defects unless otherwise specified in their insurance policy.

Chapter 558, Florida Statutes, was enacted almost 15 years ago with the express purpose of resolving construction defect claims without expensive and time-consuming litigation. Chapter 558 was originally known as the notice and right to cure statute. Unfortunately, the statute is now more commonly referred to as the “construction defect statute.” The trend has been for owners, contractors and design professionals to engage in expensive and protracted processes often lead by condo-lawyers and their engineering consultants, and on the other side, insurance companies, their lawyers and adjusters.

In Altman Contractors, Inc. v. Crum & Forster Specialty Insurance Co., the contractor’s reaction to an extensive 558 notice was an attempt to force its insurer to pay for the 558 process. Altman Contractors argued that its commercial general liability policy contractually obligated its insurance company to defend against the 558 process because it was no different than a lawsuit. Altman attempted to convince the Supreme Court that the 558 notice and right to cure process was a “civil proceeding” as defined by language of their insurance policy.

The Supreme Court expressly held that the chapter 558 presuit process is a mechanism for resolving disputed construction defect claims but it is not a civil proceeding. The Court reasoned that chapter 558 is a notice and repair process which is not equivalent to a lawsuit because participation is voluntary and does not involve a third-party acting like a judge. The Court noted that the 558 process does not take place in a court setting and the parties are free to resolve or not resolve the defect claims as they choose.

It is critical to note that the Supreme Court determined that that the 558 process would fit the insurance policy’s definition of a “suit” if the insured submitted to the 558 process with the insurer’s consent. The Court reasoned that the 558 process is an alternative dispute resolution proceeding as defined by the insurance policy that Crum & Forster Specialty Insurance Co. sold to Altman Contractors, Inc. The Supreme Court relied on the language of the insurance policy which included a specific definition of a “suit” in the context of the insurer’s duty to defend.

The Court’s holding is important because it allows contractors to request and obtain consent of their commercial general insurance company for the insurance company to pay for and participate in the 558 process. The Court’s holding provides contractors with guidance for triggering their insurance company’s duty to pay for the defense of a 558 proceeding. If the contractor elects to trigger defense coverage, then it is incumbent on the contractor to notify its insurer of the 558 claims and specifically request the insurer’s consent to the process before participating in the 558 process.

Contractors and design professionals who receive a 558 notice and demand to cure should take care to consult with their construction attorney to review their insurance coverage and determine whether and how to involve insurance in the 558 process. The determination will depend on whether any of the defects alleged in the 558 notice are covered by insurance and the specific triggering language of all applicable insurance policies.

Fashion Trends for Design Professionals: Wearing Many Different Hats

Brian L. Lynch | Faegre Baker Daniels | January 18, 2018

With the rise in alternative project delivery systems, design professionals are often expected to provide services beyond those required under the “traditional model.”1 As one may expect, this expansion of services can also increase risk for the designer and affect legal relationships and liabilities for all contracting parties. The growing complexity of construction — coupled with designers wearing multiple hats due to changing relationships and increased scopes of work from different project delivery systems and industry practices — has had a significant effect on designer liability.

Today, design professionals can wear any one of following three “hats” during a project:

  • An independent contractor in the preparation of the construction plans and specifications.
  • An agent of the owner in observing the construction work as it progresses and administering the contract.
  • A quasi-judicial officer with certain immunity when acting as arbiter in resolving disputes between the owner and the contractor.2

Hat No. 1: An Independent Contractor

First, during the preparation of construction plans and specifications, a designer’s legal role is that of an “independent contractor.” Under state licensure statutes and state and local building codes, the designer bears a unique responsibility as an “independent contractor” which cannot be delegated except to other licensed professionals. The principal consequence of this classification in performing design services is that a designer may be held liable for negligence to parties with whom there is no contractual privity that results in injuries to persons or property and, in some jurisdictions, in economic losses.3

Hat No. 2: An Agent of the Owner

Second, a designer may provide a vast array of services during the administration and construction phases, acting as an agent for the owner within the scope of his or her contract with the owner.4 For example, Section 4.2.1 of the new AIA Document A201-2017, General Conditions of the Contract for Construction, specifically states that “[t]he Architect will have authority to act on behalf of the Owner only to the extent provided in the Contract Documents.” Whether a designer is an agent or independent contractor during these phases can have significant implications for all contracting parties, such as whether a) the owner is bound by the designer’s actions; b) the designer may be liable to contractors and other third-parties for harm caused by their acts as an owner’s agent; and c) whether a designer can be found liable to a contractor seeking tort damages for economic loss.

Hat No. 3: An Independent Arbiter

Lastly, a designer may serve as an independent quasi-adjudicator of disputes between the owner and contractor as provided for in the contract documents. Frequently, a designer is given the authority to interpret contract documents due to its status as the party knowledgeable about design intent. For example, Section 4.2.11 of the new AIA Document A201-2017 states that it is the role of the designer to “interpret and decide matters concerning performance under, and requirements of, the Contract Documents on written request of either the Owner or Contractor.” In rendering these interpretations, Section 4.2.12 requires the designer to “endeavor to secure faithful performance by both Owner and Contractor, will not show partiality to either, and will not be liable for results of interpretations or decisions rendered in good faith.” This role, however, is fraught with potential conflicts of interest, as a designer is normally employed and paid by an owner. One of the most prevalent is when a designer is required to reexamine positions taken as the owner’s agent during the administration and construction phases. But if acting in good faith in its role as a quasi-arbitrator, designers are granted immunity from suit for their decisions.5

Because design professionals can wear any number of “hats” during a construction project — which each have an important effect on legal relationships and liabilities — it is important that all contracting parties understand which roles the design professional plays on their project.

For more on the distinct professional roles of a designer, see Bruner & O’Connor Construction Law §§ 17.4 to 17.9.

1 For an overview of the “traditional model” of project delivery, see 1 Bruner & O’Connor Construction Law §§ 2:13, 2:29 to 2:30, 6:1 to 6:4.
2 See 5 Bruner & O’Connor Construction Law §§ 17.4 to 17.9.
3 See, e.g., Eastern Steel Constructors, Inc. v. City of Salem, 549 S.E.2d 266 (W. Va. 2001) (holding architect liable to contractor for economic losses arising out of defectively prepared plans and specifications on the basis of both professional negligence and implied warranty).
4 “Possible services include: (1) advising the owner regarding contractor selection; (2) observing the work for compliance with the plans and specifications; (3) certifying contractor payment applications; (4) reviewing shop drawing submittals; (5) monitoring project scheduling; (6) certifying substantial and final completion; and (7) certifying grounds for contract termination for default.” 5 Bruner & O’Connor Construction Law § 17:6.
5 See, e.g., Wilder v. Crook, 34 So. 2d 832, 834 (Ala. 1948)

In a Win for Design Professionals, California Court of Appeals Holds That Relation-Back Doctrine Does Not Apply to Certificate of Merit Law

Garret Murai | California Construction Law Blog | December 5, 2017

The year was 1995. The old guard was still in power in Sacramento. “Button-Down” Pete Wilson was Governor. Willie Brown, the self-nicknamed “Ayatollah of the Assembly,” was Speaker of the Assembly. And Bill “Huggy” Lockyer was Senate Pro Tem. Names that, for many reasons as of late, seem . . .  well . . . let’s just say, “quaint.”

Their time, however, was coming to an end. Three years earlier, California voters approved Proposition 140, which instituted term limits for the first time in California. And by 1996, the first slate of legislators would be “termed out.” The immediate impact: It was the time for making deals because you didn’t know who would be keeping house next.

At the time, I was lobbying for a trade association in Sacramento representing the architecture profession. One of the key legislative priorities for the association was protecting and “preserving” a statute that had originally been enacted in 1979 and scheduled to have sunsetted in 1984. For more than 10 years, it had been kept alive by legislative extensions.

The law, Business and Professions Code section 411.35, was designed to limit frivolous lawsuits against licensed architects, registered professional engineers and licensed land surveyors by requiring attorneys to consult with another design professional as a condition of filing a complaint or cross-complaint against a licensed architect, registered professional engineer, or licensed land surveyor.

Also known as a “Certificate of Merit,” the law was supposed to sunset in 1995, but the association was able to get the sunset removed. Business and Professions Code section 411.35, as currently amended, provides that “on or before” serving a cross-complaint alleging the professional negligence of a licensed architect, registered engineer, or licensed surveyor, a certificate of merit must be signed by the attorney and filed with the court representing that either:

  1. The attorney has consulted with at least one architect, professional engineer, or land surveyor licensed to practice in California or any other state, who is in the same discipline as the architect, professional engineer, or land surveyor, and the attorney has concluded based on the consultation that there is reasonable and meritorious cause for filing the complaint or cross-complaint;
  2. The attorney was unable to obtain a consultation before the running of the statute of limitations, in which event, a certificate of merit shall be filed within sixty (60) days after filing the complaint; or
  3. The attorney was unable to obtain a consultation following three (3) good faith attempts to obtain an opinion from three (3) separate architects, professional engineers, or land surveyors.

An attorney is not required to disclose the identity of architect(s), professional engineer(s), or land surveyor(s) consulted unless the attorney files a certificate of merit stating that it was unable to obtain a consultation, in which event, the identities of the architects, professional engineers, or land surveyors from whom a consultation was sought may be required to be disclosed by the court.

However, if, at the conclusion of litigation, the licensed architect, registered engineer, or licensed surveyor prevails, the licensed architect, registered engineer, or licensed surveyor may file a motion with the court requiring the attorney to disclose the names, addresses, and telephone numbers of the persons consulted. If the court finds that the consulting requirements were not met, the court may order a party, a party’s attorney, or both, to pay reasonable expenses, including attorney’s fees, to the licensed architect, registered engineer, or licensed surveyor.

In Curtis Engineering Corporation v. Superior Court of San Diego, Case No. D072046 (October 23, 2017), the California Court of Appeals addressed the impact of the relation-back doctrine – a doctrine that generally provides that a later-filed pleading “relates back” to the date of an earlier-filed pleading for statute of limitations purposes – on the certificate of merit law.

Curtis Engineering Corporation v. Superior Court of San Diego

In Curtis Engineering, George Sutherland, a crane operator, was injured when his crane tipped over on May 5, 2014. Nearly two years later, on May 3, 2016, he filed suit in the San Diego Superior Court. His complaint included a negligence cause of action against Curtis Engineering Corporation.

Sutherland’s original complaint, however, did not include a certificate of merit. On December 1, 2016, Sutherland filed an amended complaint that included a certificate of merit.

In response, Curtis Engineering filed a demurrer arguing that Sutherland had failed to file the required certificate of merit within the two-year statute of limitations period applicable to a negligence cause of action. The trial court, however, denied the motion concluding that the first amended complaint “related-back”to the date the original complaint was filed

Curtis Engineering appealed.

The Court of Appeal Decision

On appeal, Curtis Engineering argued that the two-year statute of limitations for negligence expired on May 5, 2016, that the certificate of merit was not filed until December 1, 2016 (nearly seven months after expiration of the statute of limitations), and that the sixty (60) day grace period under Business and Professions Code section 411.35 had expired on July 2, 2016.

Discussing the relation-back doctrine, the Court of Appeals explained that under the doctrine a later-filed pleading will be deemed to have been filed at the time of an earlier complaint if the amended complaint is based on the same general set of facts. However, held the Court, based on the language of the certificate of merit statute, the relation-back doctrine does not apply to later-filed pleadings alleging the professional negligence of a licensed architect, professional engineer, or licensed surveyor for two reasons.

First, held the Court of Appeals, Business and Professions Code section 411.35 states that a certificate of merit “shall” be signed and filed by an attorney “on or before the date of service.” This requirement, explained the Court, would be rendered meaningless if the relation-back doctrine permitted an attorney to file a certificate of merit later in time in order to avoid a statute of limitations deadline.

Second, held the Court of Appeals, Business and Professions Code section 411.35 provides a sixty (60) day grace period applicable in situations where an attorney is unable to file a certificate of merit before a statute of limitations deadline. “[A]pplying the relation-back doctrine in this situation,” explained the Court, “would mean a plaintiff has virtually an unlimited amount of time to obtain the necessary consultation as long as the plaintiff files the certificate of merit with an amended complaint that relates back to the original complaint. This cannot be what the Legislature intended.”

Conclusion

Curtis Engineering provides further assurances to licensed architects, registered engineers and licensed surveyors that the intent of the certificate of merit law is preserved, by requiring attorneys to obtain a certificate of merit “on or before” service of a complaint or cross-complaint, or if a certificate of merit cannot be filed by the time a statute of limitations deadline expires, by requiring that a certificate of merit be filed within sixty (60) days after the filing of a complaint or cross-complaint.