A/E Professional Liability Update
Claims Issues Facing Today's Engineering Firms
Presented by:
Rob Hughes, Esq.
AMES & GOUGH
April 26, 2012
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Professional Liability Claim Trends
◦ Frequency & Severity
◦ ‘Hot Topic” - Indemnity
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Case Studies
◦ Transportation
◦ Infrastructure
◦ Marcellus Update
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Insurance
◦ Technology Related Services
◦ Data Security & Confidential Personal Information
SOURCE: Victor O. Schinnerer & Company, Inc.
SOURCE: Victor O. Schinnerer & Company, Inc.
SOURCE: Victor O. Schinnerer & Company, Inc.
 Professional
liability - the indemnity should
be based solely on events, damages or
costs caused by your negligence
 Accept responsibility only for your acts and
those of your subconsultants (vicarious
liability) NOT the acts of the client (or
others).
 Remove obligations to “defend” and replace
with language that you agree to reimburse
the client’s reasonable attorney’s fees
Residential condominium complex. Contract
included indemnity provision that required
CH2M Hill to indemnify UDC for any claims,
demands, injuries, etc., ". . . to the extent
they arise out of or are in any way connected
with any negligent act or omission" by CH2M
Hill. The agreement also required CH2M Hill
to defend UDC for ". . . any claim or demand
covered herein.“ UDC-Universal Development v.
CH2M Hill (CA Ct of Appeals, 2010)
California Legislature enacted Senate Bill 972:
Indemnity agreements between public
agencies and design professionals are
unenforceable, except for claims that arise
out of, pertain to, or relate to the negligence,
recklessness, or willful misconduct of the
design professional. The law applies to
contracts entered into on or after 1/1/11.
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Possible language:
“The Engineer further agrees to indemnify
and hold Owner free and harmless from any
claim, demand, loss, damage, or injury
(including attorney’s fees) caused by any
negligent act or omission by the Engineer,
its agents, servants, or employees.”
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Owner hired geotechnical engineer, civil
engineer and a general contractor. Geotech
had 2 contracts – investigation phase and
construction phase.
Owner claimed damages of $5.35M for repair
of bldg and parking lot and $6.5M in
diminished value of the bldg.
Verdict of $486,000 on the bldg - 10%
geotech and 90% GC. Parking lot 50/50
Owner and GC on $1.6M in damages.
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Trial Court – Owner entitled to recover all of
its legal fees ($810,000) based on the plain
language of the indemnity agreement in the
second of the two Owner/Geotech contracts.
Fifth Circuit – overturned the trial court, but
only to extent that the Owner had to allocate
fees between successful and unsuccessful
claims – “Wal-Mart’s recovery should have
been limited to those attorney’s fees incurred
in proving Qore’s liability on the building
repair claim.”
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In the end the expansion cost $4,793,544.52, or
$585,544.52 an overrun of nearly 14 percent.
Included in that $585,544.52 figure was a payment
which the Town Council authorized the Utility to
make to the GC, to resolve the latter’s claim for
$1,202,404.92, “primarily for costs and damages
allegedly arising out of design errors, omissions of,
and constructive changes caused by the original
project engineer.”
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Utility and the town asserted claims, relating
to the design of the expansion, for breach of
contract, negligence, and breach of warranty
of the adequacy of the plans and
specifications.
Settlement for $275,000. Town/Utility’s
counsel argued in support –
◦ The cost of legal defense was coming off the face
value of the policy. The $275,000 figure represents
an amount “over and above” the policy’s limits.
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City of Salisbury filed a $28 million lawsuit against
an engineering company that city leaders blame for
problems with the wastewater treatment plant.
Salisbury Mayor Jim Ireton said, "I don't believe
we're responsible for why it's not 100 percent.“
The city spent $84 million on upgrades at the
wastewater treatment plant. The city claims that
the design cannot handle the city's current load or
the environment. Also alleges O'Brien & Gere was
not up front with how much and how difficult it
would be to operate the newly upgraded plant.
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The city is seeking damages for repair of the
wastewater treatment plant's
◦ design defects,
◦ increased cost of operation, &
◦ recovery of any monetary penalties imposed by the
state of Maryland and/or the U.S. Environmental
Protection Agency for non-compliance with the
city's wastewater discharge permit and/or sanitary
sewer overflows.
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Extreme risk – New Construction & >250 ft
in length
Case Study - Indian River (DE) Inlet – After
spending upwards of $21M in constructing
bridge approaches, DElDOT announced they
would have to be removed due to excessive
settlement.
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DelDOT filed suit against bridge design firm Figg
Bridge Engineers, Inc. and its geotechnical
subconsultant MACTEC Engineering and
Consulting, Inc. for geotechnical errors
Failed to account for the nature and extent of
settlement of soil under the earthen roadway
embankments
The suit further alleges that MACTEC provided
erroneous information regarding the soil
settlement to DelDOT.
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DelDOT seeks as damages its costs to
construct the original earthen embankments
and their partial removal, together with other
related damages in excess of $19.6 million.
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DelDOT and others peer reviewed the design.
2005 original bridge design was cancelled,
with any subsequent design requiring
substantial changes to the embankments.
By spring 2008 data showed settlement had
stopped and as built embankments could
have been used.
As of January 2008 DelDOT had incurred
$2.1M in legal and expert fees.
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Highway work zones across the country that
have killed at least 4,700 people and injured
200,000 in the last five years alone.
“Behind this human toll is a litany of mundane
hazards: concrete barriers in the wrong
position, obsolete lane markings left in place,
warning signs never deployed.”
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Ohio created a system to monitor work-zone
crashes in real time, they were startled to
discover that the presence of construction
caused accident rates to jump as much as 70
percent
Accidents involving dangerous drop-offs kill
about 160 people and injure 11,000 each
year.
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Assume motorists will reduce their speed
only if they perceive a need to do
so…[R]educed‐speed zoning should be
avoided as much as possible.
Traffic safety in construction and
maintenance zones should be an integral and
high‐priority element of every project from
planning through design and construction.
1) Ensuring that all phases of the project are
being built as per plan, specifications, and
contract
2) Monitoring the traffic control plan to ensure
safe travel for the public through the work
zone;
3) Ensuring compliance with environmental
commitments, permit requirements, and
“Best Practices”;
4) Monitoring project activities for compliance
with all OSHA and state safety requirements
to ensure a safe working environment;
5) Quality assurance through materials testing;
6) Rejecting materials and work that does not
comply with the plans and specifications;
7) Preparing and managing all documentation
related to the project;
8) Approve payments for work completed
satisfactorily;
9) Monitoring compliance with all federal and
state labor requirements.
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Study reviewed updated DOT Manuals (since
2005) - The results indicate that there is no
standard definition of “errors and omissions”
used by these12 state DOTs, but a number of
definitions share common ideas.
Optional threshold values that serve as a
guide in determining whether or not to
pursue cost recovery.
Examples –
◦ 5% of the construction contractor’s bid or
$20,000, whichever is less.
◦ Change Order >$200,000 or totaling >10% of
construction value
◦ $20,000 for a single occurrence, and $50,000 for
cumulative occurrences.
Compared with –
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When consultant errors, omissions, or contractual
breaches rise to the level of negligence, the
Department shall pursue recovery for certain added
project costs.
The consultant should only be held accountable for
the costs of the new design – not for additional
construction costs resulting from such errors –
unless are result of gross negligence or
carelessness.”
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While it is true that our streets and highways need
not be brought into compliance with design
standards immediately upon the adoption of those
standards, new requirements for roadway safety
are to be implemented when a significant project
such as a roadway re-design or even resurfacing is
undertaken. At that point, it is incumbent upon the
project engineer to look around to assess and
correct all substandard conditions.
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Plaintiff and his wife were driving southbound
on the I-15 on their way home from a trip to
the Grand Canyon. Plaintiff's wife was driving
on a downgrade stretch of highway known as
the "Baker Grade" when she was forced to
steer left to avoid another car. Plaintiff lost
control and the car rolled over.
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Plaintiff claimed that the road was in a
dangerous condition - the shoulder width
was insufficiently narrow and an excessive
drop off at the edge of pavement led to the
loss of control. The median shoulder sloped
downward more severely than was called for
in the design plans.
$10.6 Million - Defective Roadway
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FAIRMONT, W.Va. -- The brief testimony of a
West Virginia sheriff Wednesday was enough
to put the Marcellus Shale industry on the
defensive as Sen. Jay Rockefeller, D-W.Va.,
probed companies on who is driving the
heavy trucks that dominate his state's
roadways.
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All local ordinances are preempted, except
those adopted pursuant to the Municipalities
Planning Code (“MPC”) and the Flood Plain
Management Act. Ordinances cannot address
the same features or purposes as Act 13, and
are also preempted by state and Federal
environmental statutes.
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local ordinances also must provide for the
“reasonable development of oil and gas”:
Allow pipeline/well assessment (including seismic
testing) throughout the local government.
No conditions on construction more stringent than
other industrial uses.
No conditions more stringent than those imposed
on industrial uses or other land development in the
zoning district, including those for height,
screening, fencing, lighting and noise.
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The new legislation requires drillers to provide the state with a list of chemicals used
during hydraulic fracturing, with the exception of chemicals the energy companies deem
“trade secrets.”
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Disruption of any web interface,
Accidental transmission of computer viruses,
Unintended release of, or damage to, confidential
client files and information, including designs and
blueprints of public and commercial buildings or
other structures that might be potential targets for
theft and related criminal activity or terrorism.
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Professional or Technology Liability insurance for
network security, cyber attack and web content
liability, included against a party’s unauthorized
access, use, tampering into data or computer
system or failure to properly handle, manage or
store personal confidential information in any
form. The insurance shall cover the infringement
of a 3rd party’s intellectual property. The insurance
shall also provide coverage to mitigate claims such
as re-issuing of credit cards, cost of credit
monitoring and cost of notification. Limits of at
least $5,000,000 per claim.
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Professional services includes ordinary
technology services provided for others on
the course of professional services described
above. Such technology services include the
design, development programming, analysis,
training, use, hosting, management, support
and maintenance of any software, database,
internet service, or website;
Questions?
Rob Hughes, Esq.
Senior Vice-President
Ames & Gough
rhughes@amesgough.com