Issues Affecting Professional Liability Claims against Design & Construction Professionals in 2021
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WEBINAR Issues Affecting Professional Liability Claims against Design & Construction Professionals in 2021 Tuesday, May 4, 2021 Michael Beckelman Wendy Testa Partner – Houston, TX Partner – Philadelphia, PA 713.353.2028 215.606.3910 michael.beckelman@wilsonelser.com wendy.testa@wilsonelser.com
5/4/2021 DESIGN PROFESSIONAL’S TOOL BOX FOR MANAGING RISK Wendy D. Testa Michael Beckelman Co-Chair of Design Professional Co-Chair of Design Professional and Complex Tort and General Practice Practices Wilson Elser - Houston Wilson Elser - Philadelphia © 2021 Wilson Elser. 1 All rights reserved. Course Description The course will address issues of importance for Architects and Engineers including: allocation and management of risks and avoidance of claims; key contract provisions and concerns; and recent legal developments and trends. Learning Objectives This seminar will provide a comprehensive assessment of risk management tools available to architects and engineers. Attendees will gain critical insight in order to evaluate and balance business opportunities against risks, avoid unmitigated risk, and when warranted, accept measured risk while learning how to minimize, mitigate, and manage risk. At the end of this presentation you will: 1. Understand the concept of Risk Management and its application to the professional practice of architecture and engineering, including client relations, contract negotiation, and construction phase services; 2. Be able to identify the possible defenses to a professional liability claim; 3. Be able to spot and recognize the nuances of various contract clauses that may result in increased exposure to risk and potential professional and other liability; 4. Be able to formulate a strategy for shifting, transferring, mitigating, and managing risk through: client education, controlling, and managing client expectations, limiting liability, qualifying and conditioning contract language, and monitoring continued exposure to risk throughout the duration of a project or a client relationship. 1
5/4/2021 Smart Contracting 4 • Contract Documents • Effective ADR • Scope of Work • Cost Estimates • Standard of Care • Site Visits • Compliance with Laws and Codes • Limitations to Liability • Termination • Ownership of Documents • Duty to Defend, Indemnify and to Insure Another © 2014 Wilson Elser. All rights reserved. What are “Contract Documents”? • “Contract Documents” are generally more than just the contract that you enter • Those documents to be included in “Contract Documents” will be defined in the contract • “Contract Documents” will typically include: – Your Contract for the Project – Design plans and specifications – The Prime Contract and “Prime Contract Documents” related to the project if you are a sub-consultant Effective Alternative Resolution (ADR) Clauses • Agreed upon and SPECIFIC terms – Have a detailed resolution process that is • Realistic • Attractive • Negotiated – Do not forget to address the details such as specifically what issues would be addressed under ADR • “anything arising from a contract” – Select a location for arbitration/mediation – Specify a selection process for an arbitrator/mediator © 2014 Wilson Elser. All rights reserved. 6 2
5/4/2021 Effective Alternative Resolution (ADR) Clauses • Steps to effective resolution – Ease of process – Time limited steps prompt resolution – Agreed to by all • Do not agree as a nonparty to be bound by arbitration • Requirement of contract between other on job (e.g., owner/GC/CM © 2014 Wilson Elser. All rights reserved. 7 Mediation v. Arbitration Benefits to Mediation: – Non-binding (not a final decision) – Flexibility – Less costly than trial – not all arbitration forums are equal – Very open to negotiation – Resolve dispute under “relaxed” terms – Arbitration awards may be final / binding decision or difficult to appeal – Arbitration allows for limited discovery – Arbitration is more adversarial than a mediation (like a mini trial) © 2014 Wilson Elser. All rights reserved. 8 Scope of Work—Avoid wearing too many hats Design professionals trying to add value to services provided – Detail must be provided in scope – Actual work done on project must follow work outlined in scope – Avoid ambiguity in scope and titles for your role on the job • E.g. different names or titles for you throughout the contract – Avoid performing services outside traditional scope of design professionals services – DOCUMENT © 2014 Wilson Elser. All rights reserved. 9 3
5/4/2021 Cost Estimates • Design professionals should make no guarantee or warranty that a project can be built within the estimate • Insist that an owner identify a project budget in writing • If a project does not move forward within specified time period, a cost estimate may be revised • Design professionals should limit responsibility for redesign due to reduced scope or budget constraints © 2014 Wilson Elser. All rights reserved. 10 Cost Estimates Example of favorable language for cost estimates © 2012 Wilson Elser Moskowitz Edelman & Dicker LLP. All rights reserved. Standard of Care • Avoid assuming a heightened standard of care – Accepting relationship of trust and confidence – Assuming fiduciary duty – Convenient or promise to perform to our best skill and judgment • The best language to use will compare you: – To a similarly situated design professional – Reasonably prudent design professional • Recommended language can be found in AIA Document B101 Section 2.2 © 2014 Wilson Elser. All rights reserved. 12 4
5/4/2021 Standard of Care We recommend language similar to this AIA- approved language: “The Architect shall perform its services consistent with the professional skill and care ordinarily provided by members of the profession practicing in the same or similar locality under the same or similar circumstances. The Architect shall perform its services as expeditiously as is consistent with such professional skill and care and the orderly progress of the Project.” (See AIA Document B101, Section 2.2) © 2012 Wilson Elser Moskowitz Edelman & Dicker LLP. All rights reserved. Site Visits • Identify these as observations, not inspections, to avoid an assumption of duty to supervise the work • Specify the purpose and the frequency as well as what you are not doing during your site visits (e.g. safety obligations) • Documenting and photography while on site is critical – Multiple design professionals on a project (clear delineation of work) – Predecessor design professional – Preexisting issues on job –resolve before your entry onto the site – Abandoned and restarted projects • Regular site visits may result in an assumption of a duty to supervise the work • We caution against language stating that the DP will be present during critical periods – What if something goes wrong and you are not there? – Breach of duty © 2014 Wilson Elser. All rights reserved. 14 Compliance with Laws & Codes • Some contracts may mandate compliance or specify that failure to maintain compliance will place a professional consultant in default © 2014 Wilson Elser. All rights reserved. 15 5
5/4/2021 Compliance with Laws, Codes, Etc. © 2012 Wilson Elser Moskowitz Edelman & Dicker LLP. All rights reserved. Compliance with Laws, Codes, Etc. Why is this a problem? © 2012 Wilson Elser Moskowitz Edelman & Dicker LLP. All rights reserved. Limitations of Liability Drafter beware: Contract ambiguity will likely be interpreted in favor of the party who did not draft the document © 2014 Wilson Elser. All rights reserved. 18 6
5/4/2021 Limitations of Liability • Evidence that a contract was negotiated strengthens the chance of enforcement – Put communications about proposed changes in writing • Most courts will uphold clauses limiting liability if they appear overreaching or against public policy • Limitations on liability are more likely to be upheld than “hold harmless” clauses © 2014 Wilson Elser. All rights reserved. 19 Limitations of Liability • Takeaway: There should be a reasonable relationship to limiting damages and costs of service or design professional involvement on a project © 2014 Wilson Elser. All rights reserved. 20 Termination • Termination for convenience—Must ensure sufficient notice • Termination for cause – Make sure design professional also has a right to terminate for an owner’s breach – Make sure there is a cure period © 2014 Wilson Elser. All rights reserved. 21 7
5/4/2021 Ownership of Documents • Owner should not be entitled to drawings, professionals are selling services (i.e., the building). • Recommend a non-exclusive license to the owner • If ownership is insisted, include indemnification language and do not represent that the documents are complete • Electronic data… © 2014 Wilson Elser. All rights reserved. 22 Contractual Obligations to Defend, Indemnify, and Provide Coverage • Professional liability (PL) policies cover professional services of its insureds only. • Insurer pays on behalf of its insured if insured is negligent while performing professional services © 2014 Wilson Elser. All rights reserved. 23 Professional Liability (PL) v. General Liability (GL) • You may be able to obtain additional insured status under another’s GL policy if policy language provides for it – Caveat—what is promised for in contract, may not be provided for under promisor’s policy • Design professionals NEED BOTH PL and GL policies – But must be wary of coverage gaps based on different types of policies © 2014 Wilson Elser. All rights reserved. 24 8
5/4/2021 Indemnification Clauses in Contracts Not typically available under PL policy of another EVEN IF PROMISED (with a few exceptions…limited endorsement) © 2014 Wilson Elser. All rights reserved. 25 Indemnification Clauses in Contracts • To the extent you can get it: – Hold harmless clauses strictly construed by courts and frequently stricken – Can only be indemnified by another to the extent of that other party’s negligence – Indemnification clauses precluded in some states • Know your anti-indemnity statutes – Consider spilt indemnification clauses in contracts – Review contractual obligations against policies under which promises are made – Even if you are not a contractual indemnitee you may be (or seek) additional insured status © 2014 Wilson Elser. All rights reserved. 26 Insurance Clauses in Contracts—What is Important? • Requiring that the other party gives you certificate of insurance (COI) is NOT enough—Ask for policy! • COI = evidence that party has insurance but not what may be required to afford additional insured status to you. © 2014 Wilson Elser. All rights reserved. 27 9
5/4/2021 Suggested Insurance Clause Language • Policy of another required (not just a COI) • Other party’s policy applies on primary basis • Obligation to provide insurance coverage to defend you should be consistent with indemnification clause – BUT two clauses are NON-CONTINGENT – For “alleged” negligence—immediate trigger – If indemnification clause is stricken by a court Insurance clause survives • When it is possible (CGL policy), seek additional insured status. © 2014 Wilson Elser. All rights reserved. 28 Takeaways Related to Contractual Risks and Defenses • Review your contracts and coverage REGULARLY – Review for consistency – Make sure policies respond to promises made in contracts – Keep policies up to date on emerging risks – Check to see what rights you are afforded under contracts of others (third party beneficiary) – Anti-indemnity statutes – know them; vary from state to state • Enforcement of language is very state specific. – Have policies reviewed regularly by a knowledgeable professional. © 2014 Wilson Elser. All rights reserved. 29 What is a “Claim”? • Defined: – A claim is a demand for something that a party believes they are owed as a result of something caused by another party • What a claim is not? – A claim is not necessarily litigation but litigation grows from a claim • Types of Claims: – Delay Claims – Defect Claims – Warranty Claims – Contract Violation Claims – etc. 10
5/4/2021 Essential Steps for the Defense of a Claim • Pre-Claim – Save EVERY document from EVERY project • If it is not documented, IT DID NOT HAPPEN – Changes to the project or scope of work • Make sure to formally document all changes – If it is not documented, IT DID NOT HAPPEN • Post-Claim – Immediately • Report to your carrier • Save documents • Work with counsel Claim Trends • Abandoned, Suspended, Restarted Projects • Novel / new project type – green build, cannabis production facilities, modular • Code Changes • Scope Creep • “Warranty” statements / assuming heightened standard of care • Uptick on Fee claims and delay claims © 2014 Wilson Elser. All rights reserved. 32 Risks Related to Restarted Project (DP Previously Involved on Project) Before Resuming Work – Identify the Scope of Work! – Document conditions prior to doing so – Beware of “time is of the essence” language; makes the DP the guarantor of the time schedule and is unwise – Particularly problematic for restarted projects! 33 © 2012 Wilson Elser Moskowitz Edelman & Dicker LLP. All rights reserved. 11
5/4/2021 Risks From Green or Alternative Design © 2012 Wilson Elser Moskowitz Edelman & Dicker LLP. All rights reserved. Identify all applicable code requirements and performance criteria e.g. Superstorms (negligent design for failure to design consistent with flood protection); exterior envelope litigation (adequacy of material and requisite thickness of materials used) © 2014 Wilson Elser. All rights reserved. 35 Risks Related to “Scope Creep” • Desire to provide added value to the cost of services • Performance of services outside the documented scope or outside the traditional professional services performed • Failure to document change in scope of work • Failure to confirm whether services you agree to perform under the contract (or outside the original contract) are consistent with coverages • Mischaracterization of your title or duties on a project © 2014 Wilson Elser. All rights reserved. 36 12
5/4/2021 Risks Related to “Warranty” statements / assuming heightened standard of care (1) Advertising/marketing materials – avoid guarantee of specific results e.g. website; others’ marketing materials for the project (2) Assuming an expansive role on project by ambiguous language in contract documents / scope of work e.g. design manager; owner’s agent © 2014 Wilson Elser. All rights reserved. 37 Risk Management / Mitigating Losses • Document, document, document • Risk training for employees (documented and regularly) • Vet clients and subconsultants • Present options to client and document client’s directives /selections in design, materials – Outline advantages and disadvantages – Impact on cost, performance, schedule and aesthetic • Document Retention: what to keep and for how long • Project Closeout Procedures (checklist) – Review scope v. actual work on project – Client signs off on completion – Retain detailed project file / checklist – notices to agent of incidents; COs; RFIs and responses; final approvals; contract documents; policies / Cos; communications (electronic/written); observation logs/photos, etc. © 2012 Wilson Elser Moskowitz Edelman & Dicker LLP. All rights reserved. Questions? Wilson Elser’s 39 Offices located throughout the United States 39 Offices located throughout the United States Alabama | Albany | Atlanta | Austin | Baltimore | Beaumont | Boston | Chicago | Dallas | Denver | Edwardsville | Garden City | Hartford | Houston Indiana | Kentucky | Las Vegas | London | Los Angeles | Miami | Michigan | Milwaukee | Mississippi | Missouri | Nashville | New Jersey | New Orleans New York | Orlando | Philadelphia | Phoenix | San Diego | San Francisco | Sarasota | Stamford | Virginia | Washington, DC | West Palm Beach | White Plains © 2021 Wilson Elser. All rights reserved. 13
5/4/2021 Thank You! Wendy Testa, Esq. Partner Wilson Elser – Philadelphia (o) 215.606.3910 (m) 610.331.4487 Wendy.testa@wilsonelser.com Michael Beckelman, Esq. Partner Wilson Elser – Houston (o) 713.353.2028 (m)832.250.3343 Michael.beckelman@wilsonelser.com © 2012 Wilson Elser Moskowitz Edelman & Dicker LLP. All rights reserved. 14
Michael Beckelman Partner Contact Houston p. 713.353.2028 f. 713.785.7780 michael.beckelman@wilsonelser.com Michael Beckelman is the regional chair of the Complex Tort & General Casualty practice and Services a co-chair of the rm’s Design Professional practice. Mike focuses on complex litigation Architects & Engineers matters in both state and federal courts. Mike handles general, product, professional and Aviation & Aerospace premises liability; construction and architect and engineer liability; trucking and transportation; and commercial litigation. Complex Tort & General Mike has obtained substantial results through early case development and the prompt Casualty resolution of claims. Always the “voice of reason,” Mike is a consummate negotiator who Latin America often settles even the most di cult cases. Although based in Houston, Mike has experience Municipal/Local Government handling cases throughout New York and Texas. He also has handled negotiations on behalf of clients and insurers in Oklahoma, Louisiana and New Mexico. National Trial Team Prior to joining the rm, Mike served with the Manhattan District Attorney’s O ce as an Professional Liability & Services assistant district attorney and with the O ce of Special Narcotics Prosecutor for the City of Product Liability, Prevention & New York. Mike has extensive experience with investigations and grand jury proceedings and Government Compliance has tried numerous cases to verdict. Transportation Areas of Focus Canada Architect & Engineer Malpractice Mike focuses on the defense of architects, engineers and surveyors in connection with Admissions construction defect, personal injury and professional malpractice claims. He has experience Bars in defending design professionals, contractors, commercial construction rms, construction Texas, New York managers and owners across Texas, particularly with regard to defense, indemnity and coverage issues as well as design defect issues. In addition, Mike has successfully represented Courts U.S. District Court, Northern District of claims asserted against construction contractors in both construction defect and personal Texas injury claims. U.S. District Court, Eastern District of Complex Tort & General Casualty Texas Mike has defended a broad spectrum of general liability matters, including premises liability, U.S. District Court, Western District of premises security liability, vehicle-related matters and other forms of personal injury cases. Texas His experience also includes the defense of professional liability claims, product liability U.S. District Court, Southern District of claims and coverage issues. Texas Trucking & Transport Mike has represented trucking companies in state and federal courts throughout Texas in Memberships & A liations litigation arising from property loss, severe personal injuries and fatalities. He also has New York State Bar Association experience representing trucking companies in claims brought pursuant to the Carmack Texas Bar Association Amendment. Mike is currently representing several companies after having been appointed Houston Bar Association counsel by various truck insurers. He is a member of the rm’s Crisis National Response Team, participating in the initial response to and investigation of trucking accidents. Education
University at Bu alo School of Law, Product Liability J.D., 1997 Mike focuses on the defense of products liability claims asserted against a wide variety of Binghamton University, B.A., 1993 products, including claims for design, manufacturing and marketing defects. His products liability defense experience includes defending manufacturers and designers of medical Certi cations/Licenses devices, appliances, amusement attractions, pharmaceutical products, mountaineering equipment and industrial/oil eld equipment, among others. Representative Matters Represented a large bus company in connection with an accident that resulted in 13 fatalities and 14 injured parties. Although the accident occurred in Mexico, suit was led in Texas by many of the survivors and families of many of those who died. Negotiated a global settlement that was very favorable to the bus company very early in the litigation. Representing a tra c engineer in connection with a fatal vehicle accident on a toll road in Houston. Plainti s have led suit asserting that the accident was proximately caused by improper signage on the roadway. Plainti s have also led suit against various municipalities and consultants with regard to the incident. Represented a structural engineering rm in litigation involving numerous design professionals and construction contractors in which a hospital owner sought in excess of $20 million in damage sustained to the structure’s roo ng system and resulting water intrusion during both Hurricane Rita and Hurricane Ike. Recently obtained the dismissal of all claims asserted against an amusement attraction manufacturer in a design defect claim stemming from the injury of an attraction participant who sought to recover for multiple injuries sustained while participating on the ride. Representing the designer and manufacturer of a surgical cautery device in a case brought by the parents of a three-year-old surgical patient that alleges the child was caused to sustain facial burns as a result of defective design and/or manufacture of the product.
Wendy D. Testa Partner Contact Philadelphia p. 215.606.3910 f. 215.627.2665 wendy.testa@wilsonelser.com Wendy Testa is a co-chair of the rm’s Complex Tort & General Casualty and Design Services Professional practices. She focuses her legal practice on risk management services, defense Accountants and insurance coverage litigation in the areas of professional liability, including Architects & Engineers architects/engineers, brokers/agents and accountants; construction/construction defect; product liability; transportation/trucking; and contract drafting, negotiating and risk transfer Complex Tort & General disputes. Casualty First and foremost, Wendy is an aggressive advocate for her clients. She develops strong Construction client relationships through trust, responsiveness, reliability and attention to detail. From Employee Bene ts inception to the successful conclusion of a case, her skills, experience and focus are all directed toward achieving a cost-e ective resolution strategy in anticipation of her clients’ Employment & Labor needs. Wendy is an e cient and e ective litigator as a result of her responsiveness and Health Care Law attention to detail and the key issues of each case. Insurance & Reinsurance Wendy handles defense and coverage matters for the U.S. and London insurance markets. Coverage Her understanding of these markets and varied underwriting practices as well as her experience in drafting and interpreting policy language contributes to her e ectiveness with Lawyers coverage analysis and as a litigator. Medical Malpractice & Health Care Areas of Focus Pro Bono Professional Liability Product Liability, Prevention & Wendy defends professional clients, with an emphasis on architects, engineers, brokers and Government Compliance real estate professionals. Working closely with nationwide clients, she provides pre-claim added value risk management services, including contract review and drafting, seminars, Professional Liability & Services webinars and continuing education programs. Her primary focus when formulating a defense Transportation is to cost-e ectively resolve presuit and litigated matters or those pending before administrative agencies and licensing boards. Canada Architects & Engineers Wendy is experienced in the defense of architects, engineers, construction managers, design Admissions builders and surveyors and is proud to co-chair the rm's Design Professional practice team. Bars She regularly engages in nationwide client risk management services for design professionals Pennsylvania, New Jersey including contract review, drafting and negotiating and providing seminars and continuing Courts education programs on risk management tools, risk transfer, trending claims and hot topics Supreme Court of the United States in the construction industry. Wendy is barred and has extensive experience in defending U.S. Court of Appeals, Third Circuit architects and engineers in Pennsylvania and New Jersey. U.S. District Court, District of New Jersey Agents & Brokers U.S. District Court, Eastern District of As part of her professional liability practice, Wendy represents wholesale and retail insurance Pennsylvania agents and real estate professionals, including title agents. The scope of services she provides is inclusive of those she provides for construction professionals.
U.S. District Court, Western District of Construction / Construction Defect Pennsylvania Wendy’s practice in this area goes hand in hand with her signi cant experience defending design professionals. She has defended contractors, commercial and residential construction Memberships & A liations rms, construction managers and project owners in primarily in Pennsylvania and New Philadelphia Bar Association Jersey, including disputes related to contractual defense, indemni cation and insurance Camden County Bar Association coverage issues as well as multi-party, high exposure bodily injury and construction defect National Association of Women in claims. Wendy is the co-editor and contributor to the Wilson Elser Artisan/Construction Defect Construction RIMS: The Risk Management Society Law 50 State Review. Professional Liability Underwriting Society PLUS Mid-Atlantic Chapter Steering General Liability Committee, Mid-Atlantic Chapter Chair 2011-2012, 2016-2017 As a co-chair for the rm’s Complex Tort and General Casualty practice team, Wendy has built Claims Litigation Management Alliance a diverse civil litigation practice handling premises, auto and liquor liability matters on a (CLM); member Construction Claims national basis for several Fortune 500 companies and other large self-insured clients. Wendy Community; member Claims College Committee; member Conference provides her clients with a high level of responsiveness and personalized attention to assist in Committee risk and crisis management at the pre-litigation phase of potential claims and when preparing a defense in litigated matters. Representative clients include construction rms, commercial Awards & Distinctions and residential property owners and management companies, restaurants, and food and beverage manufacturers, suppliers and distributors. In addition, Wendy has co-authored Selected for inclusion Wilson Elser’s 50-state Liquor Liability Law Review for the past several years. in Pennsylvania Super Lawyers, for Professional Liability: Defense Litigation, 2016 - 2018 Insurance Coverage Wendy's experience includes both coverage litigation and drafting coverage opinions for insurers related to commercial general liability as well as professional liability policies. She Education has obtained very favorable results through motion and appellate practice of coverage Widener University School of Law, J.D., disputes for her clients. 1997 The Pennsylvania State University, Product Liability B.A., 1992 A large portion of Wendy’s practice involves the defense of product liability claims against domestic and foreign manufacturers and suppliers of construction equipment, industrial Certi cations/Licenses machinery; and food and beverage products. She advises clients and aggressively defends their products in complex cases arising out of a product's design, manufacture or marketing. These cases often involve wrongful death and catastrophic injuries, including brain damage, amputation and paralysis, as well as substantial economic claims. Representative Matters Obtained Pennsylvania Superior Court reversal of lower court decision regarding the interpretation of a claims made policy and a manuscript endorsement related to when a claim is made for purposes of coverage a orded to a claim arising from personal injury sustained in a nursing home. Obtained summary judgment in the Superior Court of New Jersey, Burlington County as a result of asserting contractual claims on behalf of a beverage equipment supplier for defense, indemni cation and insurance coverage against a bankrupt manufacturer related to a signi cant multi-party re loss claim. The client paid nothing in a $750,000 settlement and was reimbursed for all defense fees/costs. As a result of the successful defense strategy in the New Jersey litigation, a global settlement of a number of other nationwide re loss claims involving the same manufacturer and its insurer was achieved with no contribution from the client. Won motions for summary judgment based on contractual defense/indemni cation issues in construction litigation matters in the Superior Courts of New Jersey, Burlington and Camden Counties and in the Court of Common Pleas, Philadelphia County. Won motions for summary judgment (in three separate matters) based on Pennsylvania’s statutory employer defense in construction-related personal injury lawsuits in Court of Common Pleas, Philadelphia County. Won appeal related to a contractual indemni cation and insurance coverage dispute between contractors in the Superior Court of Pennsylvania, Eastern District.
Obtained favorable settlement of a construction-related wrongful death action in Burlington County. As a result of obtaining summary judgment on behalf of owner and general contractor related to a third-party contractual indemni cation claim against plainti ’s employer/contractor, the matter resolved for $1.75 million total with plainti ’s employer assuming all defense fees and costs of our client as well as a signi cant portion of the settlement.
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