Transcript Design Risk and Professional Liability Exposures
DESIGN RISK & PROFESSIONAL LIABILITY
What Every Contractor & Project Owner Should Know…
a look behind the scenes at how design professionals are being educated on risk management
Willis Construction Risk Conference
September 17, 2014
Dan Buelow Managing Director Willis A&E Group
Exclusively dedicated to A&E for over 30 Years
Professional Liability Specialists
Over 500 Design Firm Clients
Offices in over 120 Countries
Full-Service P&C and EB Independent Agency
In-House Claims Expertise and Advocates to our clients
Contract Review and Negotiation support
AIA Certified Education Provider
Risk Management Education – Webinars, Resource Library and Seminars
www.WillisAE.com
Michael Brodzinski Vice President, Construction Professional Liability Willis National Construction Practice
Leading Broker in the Construction Professional Liability Marketplace
Clients include: ENR listed Contractors, Owners & Design Professionals
#1 or #2 Broker Position with the top Professional Liability carriers
Comprehensive risk assessments and detailed program review
Contract review and consultation contractual insurance requirements
Program design and brokerage: premium & policy language negotiations
Benchmarking analysis on limits, retentions/deductibles and pricing
Experts in Project-Specific coverage and annual Practice policies
Dedicated professional liability claim experts to advocate on your behalf
DESIGN/BID/BUILD (TRADITIONAL) DELIVERY SYSTEM
OWNER 3 OWNER’S REPRESENTATIVE PRIME A/E (Architect of Record) CM @ RISK / GC SPECIALTY CONSULTANT (Environmental, Geotechnical, etc.) SUBCONSULTANT (MEP, Structural, Civil, Building Envelope, etc.) SUBCONTRACTOR SPECIALTY SUBCONSULTANT
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DESIGN/BUILD DELIVERY SYSTEM
OWNER DESIGN/BUILDER SPECIALTY CONSULTANT (Environmental, Geotechnical, etc.) PRIME A/E (Architect of Record) SUBCONTRACTOR SPECIALTY SUBCONSULTANT SUBCONSULTANT (MEP, Structural, Civil, etc.)
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WHO IS A PROFESSIONAL?
FOR OUR PURPOSES…..
One who possesses “specialized skills and experience” in architecture, engineering, or construction management. The professional may or may not be licensed or regulated, but performs the mental/intellectual task of providing a design or management task.
A professional possesses a special form of competence, which is the result of acquired learning and aptitude developed by special training and experience.
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What is a professional service?
• An act or service that exacts the use or application of special learning • It is more than mere proficiency in the performance of a task • It implies intellectual or mental skill • The labor or skill is predominantly mental or intellectual, rather than physical or manual
Willis A&E’s 5 Commandments
1) Contracts are thy friend 2) Thou shall not assume liability above the standard of care 3) Thou shall define thy scope 4) CYA with CA 5) Thou shall document – Wisely!
True or False
The standard of care for Architects and Engineers is perfection.
FALSE
Insurance/Liability 101
The liability of a Design Professional is based on the principles of negligence.
The liability of a Contractor is based on warranties and guarantees.
Professional liability insurance covers a Consultant for their negligence and contractual E&O.
General liability insurance covers bodily injury and property damage.
A.
B.
C.
Who Sues A&Es (the most)?
Third Party Owner/Client Contractor
Who Sues A&Es?
Third Party Owner/Client Claim by Contractor or Subcontractor
0% 10% 20% 30% 40% 50% 60% 70% % of Claims Dollars % of Claims Count
Comparative Claims Experience
Other Electrical Mechanical Structural Civil Claim Dollars Claim Count Fees Architect 0.0% 10.0% 20.0% 30.0% 40.0% 50.0%
Where are most claim dollars spent?
A) Claims due to economic loss B) Claims due bodily injury C) Claims due to property damage
Types of Damages
Economic Loss Property Damage Bodily Injury Other Bodily Injury Construction
0% 10% 20% 30% 40% 50% 60% % of Claims Dollars % of Claims Count
Frequency and Severity by Project Type
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Wastewater/Sewage treatment plant or system Malls, shopping centers, retail stores Residential condos (new) Single Family residential subdivisions Single family residence Schools through grade 12 Other Comm/Ind <= 9 stories
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% % of Claims Dollars % of Claims Count
Why Are Condo Projects The Riskiest Project Type?
1. 3 rd Party Exposures 2. Emotionally Charged exposure 3. Multiple potential claimants 4. Single purpose LLC 5. Developer client 6. Plaintiff attorney 7. HO Association
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True or False
Very few professional liability claims stem from non-technical aspects of a design practice.
FALSE
The Top 4 Non-technical Contributors
1. Negotiation and Contract 2. Client Selection 3. Project Team Capabilities 4. Communication
True or False
The use of absolute words, such as any, all, complete, final can impose absolute conditions on you that may be impossible to meet.
TRUE
True or False
You should always try to get a clause in your contracts that requires arbitration as the first step in the dispute resolution process.
FALSE
True or False
Use of the word Supervise can imply you have control over a jobsite - and thus responsibility for safety.
TRUE
True or False
A design professional can amend the contract after it is signed simply by virtue of his or her conduct.
TRUE
True or False
Performance of construction observation on your projects can reduce your exposure to claims.
TRUE
True or False
The Prime A&E, and all their sub consultants, should be named on the GC’s GL policy on a primary and non-contributary basis.
TRUE
True or False
Documentation is overrated.
FALSE
Contract Negotiations Deal Makers & Breakers
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Mediation
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Hazardous Materials
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Jobsite Safety
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LOL – waiver of consequential damages
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Ownership of Instruments of Service
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Termination (one sided)
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Assignment (without your consent)
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Certifications, Guarantees and Warranties (by you of virtually anything)
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Indemnities (not limited to your negligence, or defend obligation)
More Makers & Breakers
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Insurance (containing unattainable requirements)
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Jobsite Safety/Construction means, methods, techniques, sequences or procedures
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Getting Named on GC’s GL!
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Liquidated Damages
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Permits and Approvals “assist” only!
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Lender Requirements - mandatory cooperation clauses
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Stop Work Authority
True or False
To help keep legal fees down, it is important to wait as long as possible before reporting a problem to your professional liability insurance carrier.
FALSE
Thank You
Dan Buelow Managing Director Willis A&E Michael Brodzinski Vice President Professional Liability 312-288-7189 412-863-4707 [email protected] [email protected]
Appendix
#1 Contracts Are Thy Friend
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Agreements are the best vehicle the A/E has in establishing expectations and educating their client.
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A verbal agreement is worth the paper its written on
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It is much more difficult to negotiate the terms of the agreement after the work has started
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Know your agreements. Make sure your staff does too.
Thy Contracts Continued
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Have standard terms and conditions with key words/phrases – use as a baseline for all negotiations
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Get your attorney or broker to review unfamiliar wording
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Learn how to negotiate
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Know the “deal breakers” and “deal makers”
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Remember, nobody benefits from an uninsurable agreement
#2
Thou shall not assume liability above the
standard of care
Define the standard of care in your agreements:
“In providing services under this Agreement, the Consultant will endeavor to perform in a manner consistent with the degree of care and skill ordinarily exercised by members of the same profession currently practicing under similar circumstances” NOTE: Legal Standard of Care is minimum a reasonable designer would do.
Standard of Care (Continued)
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Liability over/above standard of care= potential uninsured exposures.
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Don’t warrant/guaranty/certify success of the project.
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Don’t agree to “perform to the highest standard”.
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If possible, establish a contingency fund
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Educate your client
#3
Thou Shall Define Thy Scope
Important: Your scope of services should be clearly defined and consist of three parts: 1)Services performed for a basic fee; 2)Services that are available for an additional fee; 3)Services that specifically excluded because the client has refused them, has agreed to have them performed by another party or because the consultant does not provide them.
#4 CYA with CA
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Construction observation is important in reducing your exposure to claims.
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Observation versus Inspection
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….shall visit the site at intervals appropriate to the stage of construction (avoid “periodic”)
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The purpose of construction observation is NOT to “guard the owner against all defects” or to “ensure strict conformance with the contract documents”.
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Your contract should clearly describe the extent of your CA services.
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In the event you are not responsible for CA your contract should be clear in holding you harmless.
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EVERY agreement should include a clause stating that you are not responsible for job-site safety and means and methods.
…more CYAing…
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Your contract should clearly describe the extent of your CA services.
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If not responsible for CA your contract should b clear in holding you harmless.
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EVERY agreement should include a clause stating that you are not responsible for job site safety and means and methods.
#5 Thou Shall Document - Wisely
Every firm should have clear procedures regarding documentation Forms of documentation: 1. Executed agreement 2. Certified mail 3. Memo to file
The Dark Side of Documentation
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Documentation is a double-edged sword
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Beware of documenting anything regarding site-safety or means & methods
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Beware of email AND voicemail
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Beware of field notes
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Beware of brochures bragging to be “better than the best”
It Ain’t Easy Being Green
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Use of innovative products and techniques can often heighten risk to the design firm.
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Need for sophisticated maintenance and untested/unknown life span of materials – and benefits
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Warranty versus negligence based exposures.
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Owner’s definition of “Green” may vary…
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Don’t warrant or guarantee anything.