Willis A E THE Architects Engineers Insurance Experts

Willis A&E THE Architects & Engineers Insurance Experts

The 5 Commandments of Risk Management For the Design Firm

Willis A&E ØExclusively dedicated to A&E for over 30 Years ØProfessional Liability Specialists ØOver 500 Design Firm Clients ØOffices in over 120 Countries ØFull-Service P&C and EB Independent Agency ØIn-House Claims Expertise and Advocates to our clients ØContract Review and Negotiation support ØAIA Certified Education Provider ØRisk Management Education – Webinars, Resource Library and Seminars www. Willis. AE. com

Willis is a Certified AIA Education Provider If you would like to obtain AIA credits for participating in this course, please complete the AIA Credit Request form found on our website at www. Willis. AE. com

This program is registered with the AIA/CES for continuing professional education. As such, it does not include content that may be deemed or construed to be an approval or endorsement by the AIA of any material of construction or any method or manner of handling, using, distributing, or dealing in any material or product. Questions related to specific materials, methods, and services may be addressed at the conclusion of this presentation.

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!

The Cost of a Claim • Deductible out of pocket expense • Potential loss in excess of available limits • Insurance costs for firms with poor loss history • The emotional stress and hassles of a claim • Loss of client relationships • The significant distraction to your firm’s practice • Your firm’s reputation

Risk Management 101 • You can transfer your risks by insurance. • You can transfer your risk by contract. • You can assume and control your risk. • You can avoid risk. You better be doing all of the above.

True or False The standard of care for Architects and Engineers is perfection.

Insurance/Liability 101 The liability of a Consultant 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 16

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 17

True or False Very few professional liability claims stem from non-technical aspects of a design practice.

The Top 4 Non-technical Contributors 1. Negotiation and Contract 2. Client Selection 3. Project Team Capabilities 4. Communication

Negotiation and Contract Issues

Client Selection Issues

Project Team Capabilities Issues

Communication Issues

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 or False Personnel policies have very little to do with a design firm’s risk management profile.

True or False A simple letter agreement gives the design professional all the protection needed for small projects.

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.

True or False Use of the word Supervise can imply you have control over a jobsite - and thus responsibility for safety.

True or False A design professional can amend the contract after it is signed simply by virtue of his or her conduct.

True or False Performance of construction observation on your projects can reduce your exposure to claims.

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 or False Documentation is overrated.

#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.

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.

THANK YOU!

Dan Buelow Managing Director Willis A&E 312 -288 -7189 Dan. Buelow@Willis. com Willis Tower Chicago, IL 60606