DESIGN RISK PROFESSIONAL LIABILITY What Every Contractor

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 Ø Exclusively dedicated to A&E for over 30 Years Ø Professional Liability Specialists Ø Over 500 Design Firm Clients Ø Offices in over 120 Countries Ø Full-Service P&C and EB Independent Agency Ø In-House Claims Expertise and Advocates to our clients Ø Contract Review and Negotiation support Ø AIA Certified Education Provider Ø Risk Management Education – Webinars, Resource Library and Seminars www. Willis. AE. com

Michael Brodzinski Vice President, Construction Professional Liability Willis National Construction Practice Ø Leading Broker in the Construction Professional Liability Marketplace Ø Clients include: ENR listed Contractors, Owners & Design Professionals Ø #1 or #2 Broker Position with the top Professional Liability carriers Ø Comprehensive risk assessments and detailed program review Ø Contract review and consultation contractual insurance requirements Ø Program design and brokerage: premium & policy language negotiations Ø Benchmarking analysis on limits, retentions/deductibles and pricing Ø Experts in Project-Specific coverage and annual Practice policies Ø Dedicated professional liability claim experts to advocate on your behalf

DESIGN/BID/BUILD (TRADITIONAL) DELIVERY SYSTEM OWNER 3 PRIME A/E (Architect of Record) CM @ RISK / GC SPECIALTY CONSULTANT (Environmental, Geotechnical, etc. ) SUBCONSULTANT (MEP, Structural, Civil, Building Envelope, etc. ) OWNER’S REPRESENTATIVE SUBCONTRACTOR SPECIALTY SUBCONSULTANT

DESIGN/BUILD DELIVERY SYSTEM OWNER DESIGN/BUILDER PRIME A/E (Architect of Record) SUBCONSULTANT (MEP, Structural, Civil, etc. ) 4 SUBCONTRACTOR SPECIALTY CONSULTANT (Environmental, Geotechnical, etc. ) SPECIALTY SUBCONSULTANT

WHO IS A PROFESSIONAL? FOR OUR PURPOSES…. . n 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. n A professional possesses a special form of competence, which is the result of acquired learning and aptitude developed by special training and experience. 5

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 6

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.

Who Sues A&Es (the most)? A. Third Party B. Owner/Client C. Contractor

Who Sues A&Es?

Comparative Claims Experience

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

Frequency and Severity by Project Type 15

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 16

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 • Mediation • Hazardous Materials • Jobsite Safety • LOL – waiver of consequential damages • Ownership of Instruments of Service • Termination (one sided) • Assignment (without your consent) • Certifications, Guarantees and Warranties (by you of virtually anything) • Indemnities (not limited to your negligence, or defend obligation)

More Makers & Breakers • Insurance (containing unattainable requirements) • Jobsite Safety/Construction means, methods, techniques, sequences or procedures • Getting Named on GC’s GL! • Liquidated Damages • Permits and Approvals - “assist” only! • Lender Requirements - mandatory cooperation clauses • 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 312 -288 -7189 Dan. Buelow@Willis. com Michael Brodzinski Vice President Professional Liability 412 -863 -4707 Michael. Brodzinski@willis. com

Appendix

#1 Contracts Are Thy Friend • Agreements are the best vehicle the A/E has in establishing expectations and educating their client. • A verbal agreement is worth the paper its written on • It is much more difficult to negotiate the terms of the agreement after the work has started • Know your agreements. Make sure your staff does too.

Thy Contracts Continued • Have standard terms and conditions with key words/phrases– use as a baseline for all negotiations • Get your attorney or broker to review unfamiliar wording • Learn how to negotiate • Know the “deal breakers” and “deal makers” • 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) • Liability over/above standard of care= potential uninsured exposures. • Don’t warrant/guaranty/certify success of the project. • Don’t agree to “perform to the highest standard”. • If possible, establish a contingency fund • 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 • Construction observation is important in reducing your exposure to claims. • Observation versus Inspection • …. shall visit the site at intervals appropriate to the stage of construction (avoid “periodic”) • The purpose of construction observation is NOT to “guard the owner against all defects” or to “ensure strict conformance with the contract documents”. • Your contract should clearly describe the extent of your CA services. • In the event you are not responsible for CA your contract should be clear in holding you harmless. • EVERY agreement should include a clause stating that you are not responsible for job-site safety and means and methods.

…more CYAing… • Your contract should clearly describe the extent of your CA services. • If not responsible for CA your contract should b clear in holding you harmless. • EVERY agreement should include a clause stating that you are not responsible for jobsite 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 • Documentation is a double-edged sword • Beware of documenting anything regarding site-safety or means & methods • Beware of email AND voicemail • Beware of field notes • Beware of brochures bragging to be “better than the best”

It Ain’t Easy Being Green • Use of innovative products and techniques can often heighten risk to the design firm. • Need for sophisticated maintenance and untested/unknown life span of materials – and benefits • Warranty versus negligence based exposures. • Owner’s definition of “Green” may vary… • Don’t warrant or guarantee anything.