DESIGN RISK &
PROFESSIONAL LIABILITY
What Every Contractor & Project
Owner Should Know…
a look behind the scenes at how design professionals are
being educated on risk management
Willis Construction Risk Conference
September 17, 2014
Dan Buelow
Managing Director
Willis A&E Group
 Exclusively dedicated to A&E for over 30 Years
 Professional Liability Specialists
 Over 500 Design Firm Clients
 Offices in over 120 Countries
 Full-Service P&C and EB Independent Agency
 In-House Claims Expertise and Advocates to our clients
 Contract Review and Negotiation support
 AIA Certified Education Provider
 Risk Management Education – Webinars, Resource Library and
Seminars
www.WillisAE.com
Michael Brodzinski
Vice President, Construction Professional Liability
Willis National Construction Practice
 Leading Broker in the Construction Professional Liability Marketplace
 Clients include: ENR listed Contractors, Owners & Design Professionals
 #1 or #2 Broker Position with the top Professional Liability carriers
 Comprehensive risk assessments and detailed program review
 Contract review and consultation contractual insurance requirements
 Program design and brokerage: premium & policy language negotiations
 Benchmarking analysis on limits, retentions/deductibles and pricing
 Experts in Project-Specific coverage and annual Practice policies
 Dedicated professional liability claim experts to advocate on your behalf
DESIGN/BID/BUILD (TRADITIONAL)
DELIVERY SYSTEM
OWNER
OWNER’S
REPRESENTATIVE
3
PRIME A/E
(Architect of Record)
CM @ RISK / GC
SPECIALTY
CONSULTANT
(Environmental,
Geotechnical, etc.)
SUBCONSULTANT
(MEP, Structural,
Civil, Building
Envelope, etc.)
SUBCONTRACTOR
SPECIALTY
SUBCONSULTANT
DESIGN/BUILD DELIVERY SYSTEM
OWNER
DESIGN/BUILDER
PRIME A/E
(Architect of Record)
SUBCONSULTANT
(MEP, Structural,
Civil, etc.)
4
SUBCONTRACTOR
SPECIALTY
CONSULTANT
(Environmental,
Geotechnical, etc.)
SPECIALTY
SUBCONSULTANT
WHO IS A PROFESSIONAL?
FOR OUR PURPOSES…..
 One who possesses “specialized skills and experience” in
architecture, engineering, or construction management. The
professional may or may not be licensed or regulated, but
performs the mental/intellectual task of providing a design or
management task.
 A professional possesses a special form of competence, which is
the result of acquired learning and aptitude developed by special
training and experience.
5
What is a professional
service?
• An act or service that exacts the use or application of special
learning
• It is more than mere proficiency in the performance of a task
• It implies intellectual or mental skill
• The labor or skill is predominantly mental or intellectual, rather
than physical or manual
6
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!
True or False
The standard of care for Architects and
Engineers is perfection.
FALSE
Insurance/Liability 101
The liability of a Design Professional 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?
Third Party
% of Claims Dollars
Owner/Client
% of Claims Count
Claim by Contractor or
Subcontractor
0%
10%
20%
30%
40%
50%
60%
70%
Comparative Claims
Experience
Claim Dollars
Claim Count
Fees
Other
Electrical
Mechanical
Structural
Civil
Architect
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
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
Economic Loss
Property Damage
% of Claims Dollars
% of Claims Count
Bodily Injury Other
Bodily Injury Construction
0%
10%
20%
30%
40%
50%
60%
Frequency and Severity by Project Type
Wastewater/Sewage treatment plant or system
Malls, shopping centers, retail stores
Residential condos (new)
Single Family residential subdivisions
% of Claims Dollars
% of Claims Count
Single family residence
Schools through grade 12
Other
Comm/Ind <= 9 stories
0.0%
15
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Why Are Condo Projects The
Riskiest Project Type?
1. 3rd Party Exposures
2. Emotionally Charged exposure
3. Multiple potential claimants
4. Single purpose LLC
5. Developer client
6. Plaintiff attorney
7. HO Association
16
True or False
Very few professional liability claims stem
from non-technical aspects of a design
practice.
FALSE
The Top 4
Non-technical Contributors
1. Negotiation and Contract
2. Client Selection
3. Project Team Capabilities
4. Communication
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
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.
FALSE
True or False
Use of the word Supervise can imply you
have control over a jobsite - and thus
responsibility for safety.
TRUE
True or False
A design professional can amend the
contract after it is signed simply by virtue of
his or her conduct.
TRUE
True or False
Performance of construction observation on
your projects can reduce your exposure to
claims.
TRUE
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
True or False
Documentation is overrated.
FALSE
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.
FALSE
Thank You
Dan Buelow
Managing Director
Willis A&E
312-288-7189
Dan.Buelow@Willis.com
Michael Brodzinski
Vice President
Professional Liability
412-863-4707
Michael.Brodzinski@willis.com
Appendix
#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.