Category Archives: Law Notes

Adding an “Additional Insured” in the Professional Services Agreement: an exercise in futility! (law note)

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As an architect or engineer,  you may be asked to sign a contract that has a requirement of adding the Owner (or Contractor, in a design-build project) to your own insurance as an “additional insured”.  This is usually a fall out of the fact that the Owner is treating you like a contractor and using “stock” contract language.  It is not appropriate, nor sometimes even possible, to add the Owner to your professional liability policy.

This is beacuse professional liability insurance only provides coverage for “professional services”.  That is, if it is even possible to buy such coverage, it won’t work to avoid any risks the Owner is seeking to avoid, because the Owner is not providing licensed architectural or engineering services on the Project.

In fact, because of the way professional liability policies are generally written, naming the project Owner as an additional insured essentially voids any coverage for the owner for your Firm’s design errors & omissions.

What should you do with a stubborn Owner who insists he wants to be an additional insured under your E&O policy?  Explain the facts to him, and point out he is risking voiding coverage all together.  Tell him to call me, or point out this post to him.  Also, several insurance brokers, agents, and companies have simple one or two page information sheets that you can provide to the Owner to help with his education.

Remember, having an “Additional Insured” in an Errors & Omissions policy is a true exercise in futility.  It may not be what the Owner wants to hear, but such is life!not want to hear

 

Question time:  have you ever been asked to add an Owner to your E&O insurance?  How did you handle it?  Share in the comments section, below. 

And if you haven’t already, be sure to download your free white paper on the 7 Critical Mistakes that Architects & Engineers make– it’s in the box on the top right hand side of the blog.

 

Photo credit.

What Architects & Engineers Need to Know about the New Lien Law

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engineering plansI have previously discussed the ABCs of Lien Laws for those making claims on a project (that is, architects, engineers, contractors, subcontractors, and suppliers) and the 123s of Lien Laws for project owners.  Now, time to learn some new tricks:  enter, the Lien Agent.

In case you’ve been hiding in your man-cave waiting for warmer weather to arrive and missed all the hoopla, as of April 1, 2013, North Carolina has a new lien law act.  Essentially, for *most* construction projects [there are a few limited exceptions for low dollar work or single family, owner occupied residences],  owners will need to file a notice of an entity to be their “Lien Agent”, and contractors will file notices within a short window of starting work.  If done correctly, it should keep everyone aware of who is on the project, who is doing what work, and who may have a lien.

The most pertinent part that affects architects and engineers?  This:

N.C. Gen. Stat. § 44A‑11.2

(h)        When a lien agent is not identified in a contract for improvements to real property subject to G.S. 44A‑11.1 entered into between an owner and a design professional, the design professional will be deemed to have met the requirement of notice under subsections (l) and (m) of this section on the date of the lien agent’s receipt of the owner’s designation of the lien agent. The owner shall provide written notice to the lien agent containing the information pertaining to the design professional required in a notice to lien agent pursuant to subdivisions (1) through (3) of subsection (i) of this section, by any method of delivery authorized in subsection (f) of this section. The lien agent shall include the design professional in its response to any persons requesting information relating to persons who have given notice to the lien agent pursuant to this section. For purposes of this subsection, the term “design professional” shall mean any architects, engineers, land surveyors, and landscape architects registered under Chapter 83A, 89A, or 89C of the General Statutes.

In other words, if the owner designates a lien agent up front, you follow the process and note your involvement for the record.

What if the owner does NOT designate a lien agent up front? You are covered by default, once he does so.  And he will do so, as  before the owner can get a building permit, he will be forced to designate a lien agent.  Nice, right?  You have built in protections, and you don’t need to worry about filing a lien and damaging a relationship with an owner if they are slow to pay.

The on-line system for selecting Lien Agents (for owners) and notifying Agents of your work (for everyone else) on a project is LiensNC.  A helpful tip sheet  produced by the Title Insurance industry walks you through the process.

Many other fine folks have weighed in on the nuts & bolts of how the new system works, so I will not repeat it all here.  Instead, let me direct you to a few of these resources (apologies in advance for anyone I may have slighted):

Bryan Scott:  A good place to start for a broad overview of what you need to know

For the designer’s perspective, from Matthew Bouchard:

I’m a design professional providing services prior to the execution of a contract for construction.  What if there’s no lien agent in placing during my pre-construction performance?

That depends on whether your contract is with the owner or with another design professional.  If you are in direct contractual privity with the owner and your contract does not include the lien agent information, the owner is responsible for providing your contact information to its lien agent upon the owner’s appointment of same.  If you are a design subcontractor, you should make a written request to the owner for the lien agent’s contact information.  By statute, you will have no obligation to comply with the preliminary notice requirements until you receive the contact information you have requested.

I believe that the new lien law will help design professionals, as you no longer have to worry about alienating the owner by filing a lien or risk losing your lien priority.  Instead, the lien agent will be as common as a building permit.  You will be protected from the beginning with little effort, and without even having to depend on the owner.   What do you think?

Comments? Questions?  Share you thoughts in the comments box, below.  

Photo (c) Seattle Municipal Archives.

 

 

Consequential Damages: What are they? Should I waive them? (law note)

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A client asked me about a contract he was asked to sign in which consequential damages were being waived.  Consequential damages are those things that cost money which arise indirectly out of a failure of a party on a construction project.   dollar signsThey can include:

  • loss of use
  • loss of rent
  • loss of profit
  • loss of bonding capacity
  • extended overhead
  • extended equipment rental fees
  • increased material costs
  • interest

Note that this is not an exhaustive list, and other consequential damages may be applicable depending on the project.

Often, like my client, you may be asked to waive consequential damages.  This is a double edged sword.  If the waiver is mutual (something on which you should insist), then the provision may save you money in the event your design or services delay the project.  The Owner has agreed that it cannot seek to recover indirect, consequential damages.  On the other hand, if you are the one suing the Owner, it means that there may be costs that you cannot be compensated for if a project goes awry.

The standard industry contracts all have at least some waiver of consequential damages, as noted in this chart.

waiver in form contractsBottom line: waiver of consequentials can be a good thing or a bad thing, but you will not know which when you are signing on the dotted line.

Just make sure that if there is a waiver, that it is mutual on both sides.  Good luck, and “be safe out there”

Your turn.  Have you ever waived your right to consequentials?  Horror story to share about paying someone else’s costs?  Share in the comment section.

Dollar Photo (c) sivlen001.
Chart (c) Melissa Brumback Creative Commons License

Can’t we all just get along? Mediation and settlement of the construction lawsuit (Law & Order: Hard Hat files Part 7)

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meeting around tableToday, part 7 of our series on the Construction Lawsuit, Law & Order: Hard Hat files.

At some point during the lawsuit (usually, but not always, after expert reports are produced), your lawyer may tell you the case is going to mediation.  In fact, in North Carolina, all Superior Court cases are ordered into mediation, though the timing is usually left to the lawyers.

What is mediation?

Quite simply, mediation is a process in which the parties, their insurance representatives, and their lawyers get together to discuss trying to settle the case.  The process is usually fairly informal, fast, and, often effective.

How is mediation different from arbitration?

In arbitration, you present your case to a one or three person “panel” of arbitrators.  Witnesses are sworn in, evidence is presented, and, ultimately, the arbitrator(s) decide who wins, who loses, and what amount of damages should be paid.

In mediation, however, there is no “decision maker,” and the only way your case will be resolved is if you agree to having it resolved.  In other words, you have much more control over the outcome.

Technically, how does a mediation work?

Mediations are all unique, but in general, most start out with a “general session” in a large conference room in which all parties (lawyer, parties to the lawsuit, and insurance reps) are present.  The mediator, usually another lawyer who is not involved in the case, will present opening remarks, explaining that he/she is not there to decide anything, the ground rules for the day, and how he handles confidential information.

Then, the mediator asks each lawyer to state his case.  The party who brought the lawsuit always goes first, and they state how the project started, why they sued, and why they believe they are entitled to damages.  This can range from a 5 minute speech from their lawyer to a full-blown 2 hour multi-media (read: powerpoint) presentation, including remarks from retained experts.  I’ve seen both, and everything in between.

Following the plaintiff’s presentation, the other parties will be asked to state their case (i.e., their defense, and any counterclaims), and why they believe they will prevail at trial.

After all of the lawyers have had their say, the mediator will generally allow any parties to speak if they wish to.  Discuss this with your lawyer ahead of time, but the default is to simply bite your tongue, keep your mouth shut, and wait until “private session” to have your say.  No architect or engineer ever made things better by arguing during the opening general session.

What are these “private sessions” of mediation all about?

After the opening session, the mediator will divide the parties into different conference rooms.  Sometimes, parties whose interests are closely aligned may be in the same room, at least for part of the day.  For example, if an architect and his engineer are united in their defense, they may want to spend part of the private sessions together.

The mediator will then practice “shuttle diplomacy”.  That is, the mediator will talk with each party privately, playing devil’s advocate, discussing case outcomes, and, ultimately, passing offers to settle back and forth among the parties.

How do the offers of settlement work?

The settlement offers are highly case-dependent, and can vary throughout the day depending on how the mediator likes to work and how much leeway the attorneys give him.  Usually, he starts with the plaintiffs to find out what amount of money, short of the full amount claimed, they would accept to walk away from the lawsuit.

Then, the mediator talks with the defendants (and third party defendants) about how much money they would be willing to pay to be done with the risks and unknowns of a jury trial.   Conditional, confidential, and other offers are sometimes employed.  If they are, the mediator will discuss the process with you at that time.

Why should I pay money?  My design was good and I haven’t done anything wrong!

At some point during the day, you will end up saying this.  It will seem extremely unfair that you are being asked to pay (or have your insurer pay on your behalf) for someone else’s problem or mix-up.  However, ultimately you will have to make a business decision about how much time and effort your Firm wants to spend on taking the case to a jury.  If the case settles, you free up the time you would otherwise spend in depositions, meeting with your lawyer, talking to experts, and reviewing documents.  Depending on the scope of the project and the lawsuit, this could be hundreds of man-hours.  Further, at the end of the day, you end up risking bad publicity and an adverse judgment that will affect either your bottom line or your insurance premium.

Are you saying I have to settle?

No, absolutely not.  Sometimes, the plaintiff has such a crazy demand, that you are better off taking the case to a jury.  Other times, the evidence is so much in your favor that it doesn’t make sense to settle.  Usually, however, the case is more nuanced, and so you need to discuss the evidence, and your chance of a successful verdict, with your lawyer on a case by case basis.

My case was “impassed” at mediation.  What does this mean?

If the mediator concludes that the parties are too far apart to settle, at some point he will declare an impasse.  If this happens, everyone shakes hands and goes home.

What happens next is that the lawyers may continue to talk over the next month or so to see if there is any chance at all for settlement, and at the same time begin or continue their preparations for a trial.  Just because a case impasses at mediation, doesn’t mean it can’t or won’t settle.

Cases can settle right up and through trial, until the jury comes back with a verdict.  Obviously, the sooner a case settles the better, as you will have spent less time and money on trial preparation.  However, do not give up all hope of settlement simply because of a mediation impasse.  (After all, Lennie Briscoe never gave up, did he?!).

Your turn.  Have you been part of a mediation?  Tell me about your experiences, good and bad.  And, if you haven’t already, be sure to sign up for email updates of blog posts directly to your inbox.  The sign-up box is on the top right hand side of the homepage.

Photo (c) cobrasoft. 

Mine is better than yours! Battle of the experts in the construction lawsuit (Law & Order: Hard Hat files Part 6)

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battling deerEventually, most construction lawsuits of any size involve hiring experts to review the project.  These experts then usually issue an opinion as to whether or not you, as the design professional, violated the professional standard of care for architects or engineers working on a similar project in a similar community.

If the case proceeds to trial, all sides will have their own expert(s), with rare exceptions.  Thus, the “battle of the experts” begins.  That is, a jury will have to listen to your expert, their expert, and the juror’s own common sense, and try to make out who is correct.  As with most things, there are probably valid points made by all of the hired experts (that is, of all the reputable ones, at any rate).  If a case gets to trial, you can be sure of it.

Hiring an expert to support your position can be a scary prospect.  You will essentially be paying (or having your insurance carrier pay) to have a competitor look over all of your work with a fine-tooth comb and 20/20 hindsight, to see if he can concur that your design met the standard of care.  Your attorney should work with you to get a good, solid professional peer retained as your expert; however, if you have any suggestions of who to use (or, who you do *not* wish to use), make those opinions known.  It is important to hire someone who is impartial about the outcome of the case, but you will not be required to hire your worst enemy/competitor.

Another protection that is built into litigation, is whether or not the expert’s opinion will ever see the light of day.  If the expert cannot support your position, he will be designated a “consulting expert” and his opinions will remain only between you, your lawyer, and the expert.  Assuming the expert does support your position, he will be designated as a “testifying expert,” at which point the other side can look at his records and notes, read any written reports he generates, and take his deposition.

Hiring an expert doesn’t have to be an arduous process, but work with your lawyer to get someone you respect on your side of courtroom.

Questions? Comments?  Share your experience with experts, or being an expert, in the comments section below.  And don’t forget to sign up for the Construction Professional newsletter and my free white paper on 7 Critical Mistakes, on the right hand side of the homepage.

Photo (c) Sias van Schalkwyk