What Does It All Mean and What Can We Do? October 1-2, 2015, Westin Michigan Avenue, Chicago, Illinois

Transcription

1 What Does It All Mean and What Can We Do?

2 Traci S. Lagasse Partner Jennifer L. Hamilton Associate Guy Hollingsworth Claims Manager

3 BROKER UNDERWRITER CLAIMS PROFESSIONAL ATTORNEY RISK MANAGER OTHER

4 Is the Scope of Liability for Design Professionals Expanding? Are Claims Representatives Experiencing Seemingly Limitless Exposure for Design Professionals? How Can We Stop the Bleeding?

5 Is the design professional in privity of contract? The design services contract traditionally defined the duties and responsibilities of the parties Do they even need to be? Historically parties needed to be in privity of contract but more and more cases allow parties not in privity to sue

6 In the recent California Supreme Court case, Beacon Residential Community Assn. v. Skidmore Owings & Merrill LLP, the Court found the project architect for a development owed the HOA and its members a duty of care even though the architect only had a written agreement with the project developer and not the subsequent home purchaser.

7 The Florida Supreme Court recently decided in Tiara Condominium Ass n, Inc. v. Marsh & McLennan Companies, Inc., the economic loss rule applies only in the products liability context.

8 Two recent California decisions have changed the game and redefined contractual defense and indemnity duties and obligations for design professionals: Crawford v. Weather Shield Mfg (2008) 44 Cal.4th 541 UDC v. CH2M Hill (2010) 181 Cal.App.4th 19

9 Value engineering (VE) is systematic method to improve the "value" of goods or products and services by examining function. Value, as defined, is the ratio of function to cost. Value can therefore be increased by either improving the function or reducing the cost.

10 Value=Function/Cost Function=the specific work that a design or item must perform Cost=the life-cycle cost of the project Value=the most cost-effective way to reliably accomplish a function that will meet the user s needs, desires and expectations

11 In a public highway project in Florida, the owner changed the insured s specifications as to process and materials through value engineering. Following completion of the construction, a serious accident occurred and even though the insured did not endorse these changes, the court/mediator held the insured liable for the consequential damages.

12 In Indiana, an insured architect was responsible for design of a reclamation of brown fields to convert the fields into a recreation area that uses reclaimed water and new buildings to be used for recreation areas for adults and kids alike. The insured, as part of the project cost estimates and budget, was held liable for cost over-runs even though he was not responsible for any approvals of RFI s. Eventually, the architect was held liable for 150K in damages.

13 At a refrigeration/freezer facility in Texas, an insured hired the mechanical engineer but not the refrigeration company or installer. The insured, however, did not hire the geo engineer, as that was the responsibility of the owner and GC. Following start up of the facility, it was evident that the refrigeration equipment was not operating properly, and there were numerous plumbing issues as well. The insured was held liable for the entire failure of the design even though he did not retain many of the professionals involved.

14 Limiting liability in the contract Oppose motions for summary adjudication on the duty to defend Did the indemnitee receive a defense from its liability carrier?

15 Scope of services must be clearly defined Thompson v. Gordon, Illinois Supreme Court, January 2011 An Engineer s duty is dependent only on his/her contractual obligations. Avoid terms such as, Consultant will provide all necessary services or complete services Disclaim fiduciary obligations CA Jury Verdict - City of Victorville v. Carter & Burgess (Feb )

16 No Third Party Beneficiary Provision Limitation of liability provisions A limitation of liability provision proves to be one of the most effective ways a professional can limit potential exposure to liability. Such provisions typically limit potential liability to either a fixed amount or the amount of fees on the engagement, whichever is greater. Most jurisdictions have held that such provisions are enforceable but that they will be strictly construed.

17 Oppose motions for summary adjudication on the duty to defend Argue: the Crawford provision can be distinguished Argue: deciding the duty to defend now eliminates the design professional s affirmative defense of unconscionability/adhesion contracts Argue: In CA, if no duty to defend language and the contract has a no other agreement clause, Civil Code 2778(4) should not apply

18 Did the indemnitee receive a defense from its liability carrier? Bramalea California v. Reliable Interiors (2004) 119 Cal.App.4th 468 Interstate Fire and Casualty v. Cleveland Wrecking Co. (2010) 182 Cal.App.4th 23

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