Certificates of Merit for NC lawsuits against engineers and architects? (still no)(law note)

Certificates of Merit  are documents intended to show that a true issue exists with a professional’s work, prior to that person being sued.  While North Carolina does require that a person suing a medical provider first have the matter reviewed by a professional (and attest to that in the Complaint), there is no requirement for any review prior to a lawsuit against an architect, engineer, or surveyor.  Thus, anyone can file a lawsuit against an engineer/architect/surveyor without first having their case eyeballed reviewed by another professional. magnifying glass

Over the years, there have been attempts at adding a Certificate of Merit requirement to design professional lawsuits.  See, for example, examples here: from 2005; from 2007from 2011; and from 2013.

While many states do have Certificates of Merit for lawsuits against licensed design professionals, North Carolina, to date, does not.  This is a shame, because having a professional review a potential error *before* a party spends the time and money to file a lawsuit, can only help eliminate frivolous, merit-less claims.   To win a lawsuit against a design professional, a party will need to have an expert testify that they were negligent.  The Certificate of Merit just ensures that there truly is a valid dispute before a design professional’s name and reputation get pulled into expensive, perhaps unnecessary, litigation.

Would a requirement for a Certificate of Merit eliminate unnecessary claims?  Perhaps not.  But, it gives all parties an honest “first look” at the alleged design errors before the lawyers sharpen their claws begin filing their lawsuits.

Share your thoughts on such certificates in the comments, below.

 

Do Not Pass Go! Duty to Defend in a Professional Services Agreement (law note)

sword to defendRecently a client asked me to review a contract for his Firm.  The Owner, who had prepared the draft, had inserted a rather stringent “duty to defend” clause.

As I told my client, a duty to defend clause is not a good idea for a couple of reasons.  First, if you agree to provide a defense, what that means is that you are footing the bill for the Owner if the Owner is sued by another party.  Think about that for a minute.  You are paying legal fees for someone else’s legal defense.  You may or may not be able to direct the litigation or have a say in who is hired.  Can you say open check book?

Secondly, and more importantly, the duty to defend is almost never insurable.  What that means is that your professional liability carrier will not be footing the bill—your Firm will be doing it.  This is not a case of adding the Owner as an additional insured, so do not confuse the two.  Agreeing to a duty to defend is an extremely burdensome, and potentially costly, mistake.

What do you do if your Owner is insisting on such a clause?  Try to get the clause written out of the contract, period.  Point out to your Owner that it is not covered by your professional errors  & omissions policy.  That alone is often enough to get Owners to agree.  You might also contact your insurance carrier/agent to add weight to your statement.  They can point to the provisions in the policy that will likely exclude coverage.

If the Owner will not strike the provision, then what?  Seriously think about whether this is a risk you can afford to take.   What type of project is it?   Do you know the contractor and other parties—are they reputable and qualified?  And most importantly, is the profit to your Firm such to justify the potential risk.  Usually, the answer to the last question is no.

Have you seen a “duty to defend” in an Owner contract?  Did you agree to it?  Share in the comments below, or drop me an email.

Photo: (c) MatthiasKabel via Creative Commons Attribution-Share Alike license.

Dear Engineer: Has your insurer issued a “Reservation of Rights” letter? (law note)

In my previous post, I made reference to getting a  “Reservation of Rights” letter.   I noted that the carrier may decide to defend you under a Reservation of Rights (i.e., hire your lawyer) but may not, necessarily, accept the responsibility for paying the claim.  Does this mean that the insurance company has denied your claim, or will never pay?  No.

Reservation of Rights (ROR) letters are sent for a variety of reasons- most notably, when some portion of the construction lawsuit against you is not covered under your E&O policy.  The letter must state the reason(s) that the ROR is being issued.

With the ROR, the insurance company is telling you that it reserves the right to withdraw from your defense and/or deny payment of damages at a later date, depending upon how facts in the case develop.  The notice is intended to let you know that there *may* be issues later, and to put you notice that  you have the right to hire your own lawyer (at your own expense) to protect yourself from that future potential risk.

How should you react to getting a ROR letter?  You should review it with your own lawyer, and consider retaining your lawyer to work with the lawyer the insurance carrier retains to protect your rights.

Is this required?  No.  Your insurance-retained lawyer still owes you the duty to protect your interests.  If the insurance company decides to later withdraw from defense, or seek a court ruling that they do not owe you a defense, your insurance-provided lawyer cannot represent the insurance company against you.  The insurance company would need to hire a different lawyer/law firm to make that argument.

It is never pleasant to get a ROR letter, but it is not unusual, depending on the particular facts in your case.  And it doesn’t mean that you won’t have a vigorous defense, or that the insurance-retained lawyer is not working for you.  They are, and they will.  However, it is never bad advise to have your own personal lawyer weigh in on the ROR letter and its ramifications for your Firm.

Have you ever gotten a ROR letter from your insurance carrier?  If so, share in the comment section, below.  And, be sure to get your White Paper on 7 Critical Mistakes that Architects & Engineers make, by filling out the form on the right hand side of the blog page. 

“Professional Best Efforts” part 2– Reservation of Rights for Engineers who agree to “best” efforts? (law note)

reservedRecently, a reader reached out to me to ask about case examples of an engineer losing his insurance coverage because he agreed to a “heightened” or “best” standard of care. The reader stated that he was an insurance adviser who handled various construction professional coverages, and that in his experience it was very unusual to deny or limit damages because of a heightened standard of care.

This comment led me to an informal survey of several insurance brokers that I deal with, and the general consensus is that instead of outright denying a claim, most E&O insurers will issue a “reservation of rights” letter. What that means is that the insurance company will defend the claim (i.e., pay for your lawyer to defend you and your Firm), but with the understanding that they are (potentially) denying any liability for any adverse money judgment against you.

Inevitably, most such cases settle, but if they do not, the question then is whether the heightened duty created part of the damages. The insurer may ask to intervene in the lawsuit to ask the jury that question, in an effort to limit its share of the damages.

The reader commented that he could see two related insurance limitations: (1) where the professional agreed to be liable, and (2) where the professional refused to consent to settle a claim. In such cases, many policies contain a “hammer clause” which limits the insurer’s liability and defense costs to that which would have resulted had the insured accepted the settlement.

While these are interesting fact situations to the insurance and/or law geeks among us, for those of you who would rather spend your days designing and engineering instead of in court,  the best practice still remains the same:  avoid agreeing to the highest professional standards. Being the “test case” for a novel legal issue is not in your best interest.

Thoughts? Comments? Experiences in such situations? Share in the comment section or drop me an email.

Can You Change the Scope of Work? Not in a bidding situation! (reader comment)

biddingSetting the Right Expectations for Owner Clients is a must, as I recently wrote in my post discussing Scope of Work clauses.

According to construction consultant Tony Frisby,* scope of work issues are more important than general conditions in the management of a project.

Tony notes, however, that it is not always possible to change Scope of Work clauses in every situation:

“For example, if bidding on advertised procurement, any modifications in the bid may very well be a basis of rejection as non-responsive; the subcontractor is bound the same rule as to the scope of work in the general contract.  In negotiated contracts, two step and design build, of course, the contractor can delineate modifications or exclusions.

In subcontract agreements, we recommend that a Scope Letter do exactly what you have indicated, with emphasis on duties by others, such as hoisting and services provided by others.  Obviously, we recommend the deletion of ridiculous clauses such as No Damages for Delay.”

Tony’s point is a valid one– those dealing with a Bidding situation cannot change the Scope of Work.  Most architects & engineers enjoy more flexibility here than contractors, and can work on scope of work as part of an Request for Proposal response.  Tony’s point about subcontractor agreements is equally applicable to agreements with subconsultants as well.

* Tony Frisby specializes in prevention and non-judicial resolution of construction disputes.  He also assists companies in organizational improvements.

Agree? Disagree?  Share your thoughts with Tony and me, below.

Photo credit: Financial Times via Creative Commons license.

Copyright © All Rights Reserved · Green Hope Theme by Sivan & schiy · Proudly powered by WordPress