Risk Limitations for Design Professionals in Illinois Joshua Kranz - - PowerPoint PPT Presentation

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Risk Limitations for Design Professionals in Illinois Joshua Kranz - - PowerPoint PPT Presentation

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Risk Limitations for Design Professionals in Illinois Joshua Kranz Senior Claims Counsel Head of A&E Claims Thomas G. Cronin, Esq. Gordon & Rees, LLP Chicago Cultural Center Thomas G. Cronin, Esq Gordon & Rees Chicago, IL

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Risk Limitations for Design Professionals in Illinois

Joshua Kranz Senior Claims Counsel Head of A&E Claims Thomas G. Cronin, Esq. Gordon & Rees, LLP

Chicago Cultural Center Tuesday, November 12, 2013

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Overview

  • Ways to Limit Risk

– Contract Language – Insurance – Project Management

  • Ways to Limit Liability

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

So What’s In It For YOU?

  • Expanded Knowledge Base
  • Increased Preparation
  • 3 Hours of CE Credit!!!

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Levers to Minimize Risk

  • Design professionals can reduce their potential

liability and exposure by

– Insuring the risk – Pricing the risk – Managing the risk – Transferring, avoiding and limiting the risk via contract language

  • Today, we will focus on the final point

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Norman Golinkin

  • S.E., P.E., AIA, CXLT, LEED AP
  • Architect
  • Civil/Structural Engineer
  • Over 15 years with architectural and consulting firms
  • SEA Limited

– Analysis and Evaluation of Structural and Architectural Failures – Evaluation of Existing Structures to Ensure Compliance with Plans, Specifications, and Codes

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

First Things First…What’s the Standard?

  • The standard of care in Illinois 1st defined as:

– Architects and engineers are “under a duty to exercise ordinary, reasonable care, technical skill, and ability and diligence, as are ordinarily required of architects and engineers, in the course of their plans, inspections, and supervision during construction.”

» Miller v. DeWitt (4th Dist. 1965)

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Standard of Care Evolves

  • Measured against “ordinary and reasonable skill

usually exercised by an architect.”

  • Depends upon the particular agreement entered into
  • Does not imply or guarantee a perfect plan or

satisfactory result…

– …rather, there is only liability where there is a failure to exercise reasonable care or skill

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Don’t Overextend

The Standard of Care can be altered (i.e. ELEVATED) by agreement with the owner Example: abide by the highest professional standards

  • This language overrides the customary

Standard of Care

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

I.P.I. 105.01

  • Illinois Pattern Jury Instruction re: design malpractice

» “In performing services, an architect must possess and apply the knowledge and use the skill and care that is ordinarily used by reasonably well-qualified architects. A failure to do so is a form of negligence that is called malpractice.”

  • So how is liability proved or disproved?

▪ Expert testimony ▪ In other words: “he said – she said”

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Jury Must Surrender its Own Thoughts

  • Judge will advise the jury to refrain from relying upon its
  • wn personal knowledge in determining malpractice and

liability

▪ Exception: “Common Knowledge” exception » Where the negligence is “so grossly apparent that an ordinary person would have no difficulty in recognizing it.”

» Board of Education v. Del Bianco & Associates (1st Dist. 1978)

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Gross Negligence???

  • So what is negligence that is “so grossly

apparent???”

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

So After All That…What’s the Standard???

  • The minimum a typical designer would do on a

similar project in the same geographical area and with the same resources

  • Problems with Standard

– Not clearly defined – Can be elevated by your words and actions – Almost always comes down to a battle of the experts ▪ Translation:

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Minimizing Risk

  • Start with the CONTRACT
  • Remember: Don’t Overstate Standard of Care
  • Don’t simply rely upon an AIA form

– Projects are rarely “one size fits all” approach – Each project is unique – Best Practice: Utilize an attorney to perform a contract review

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

First Things First…

  • Start with a WRITTEN contract

– Oral agreements are too risky – Leaves disputes to “He said, she said” – Many disputes involving oral contracts could have been avoided with written contract

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Scope of Work

  • Want to keep the

services you are providing bottled up in language

– Language should define your work in a clear and effective manner

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Ambiguity is Like a Knife…

  • Contract language that is ambiguous and is later put

under the microscope—via litigation—is just like a knife…

– It cuts BOTH WAYS

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Careful not to Overextend Scope

Typical Scope: Responsibility for design, planning, and engineering work

  • may also agree to undertake

Construction Management services… …but BEWARE! Do NOT assume too much scope

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Careful not to Overextend Scope

  • Responsibilities you want to avoid:

– Jobsite Safety – Means and methods

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Jobsite Visits

  • Sometimes required by owner
  • What can be done to limit the scope of these visits?

– Limit total number or regularity (i.e. once per quarter or

  • nly upon request of owner)

– Limit to observation and analysis of structure in accordance with the design and specs ▪ “Observation” is VERY different from “Supervision”

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

How Can Designers Limit Liability?

  • Exculpatory language in the contract

– AIA Document B101 (Standard Form of Agreement Between Owner and Architect)

– 2.6.2.1: The Architect…shall visit the site at intervals appropriate to the stage of the Contractor’s operations, or as otherwise agreed by the Owner and Architect…(1) to become generally familiar with and to keep the Owner informed about the progress and quality of the portion of the Work completed, (2) to endeavor to guard the Owner against defects and deficiencies in the Work, and (3) to determine in general if the Work is being performed in a manner indicating that the Work, when fully completed, will be in accordance with the Contract Documents.

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

– 2.6.2.1, continued:

  • HOWEVER, the Architect shall not be required to make

exhaustive or continuous on-site inspections to check the quality or quantity of the Work. The Architect shall neither have control over or charge of, nor be responsible for, the construction means, methods…or for safety precautions and programs in connection with the Work, since these are solely the Contractor’s rights and responsibilities under the Contract Documents.

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Avoid Any Safety Obligations

  • NOT looking for any safety hazards or violations
  • NO AUTHORITY to stop work

– That’s the responsibility of the General Contractor and the Subcontractors ▪ Translation: Everyone BUT the design professional

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

So What’s the Point of Jobsite Visit?

  • To Ensure work is in “General Conformance”

– Avoid obligation of taking measurements or making exhaustive inspections – If non-conforming: REJECT IT ▪ It is Designer’s DUTY

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Means and Methods

  • Design Professional not supposed to

make sure the Means and Methods of work are in conformance

– Example: ▪ NOT: This is how you weld ▪ BUT: Welding is in place

  • Concern is the Final Result…

– Not how it got done

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Means and Methods Example

  • The roof of a new building is to be framed with wood

trusses

  • The design documents require the installation of the

trusses comport with certain published industry standards that include requirements for bracing the trusses

  • The standards require that one should “See a

registered professional engineer” for the design of bracing patterns for trusses of the size to be installed in this case

  • During construction, the trusses are not properly

braced, they are improperly loaded, and the trusses collapse, injuring a worker

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Lawsuit

  • Lawsuit allegations:

– The architect and structural engineer improperly approved incomplete truss shop drawings, which did not include a bracing plan – The design professionals did not conduct a site visit during the “critical” stage of the truss erection, at which time they could have seen the bracing and loading problems and acted to correct them

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Over Budget?

  • How can designer limit liability when construction

costs exceed budget?

– Put it in the contract – 2.1.7.2: …Neither the Architect or Owner has control

  • ver the cost of labor, materials or equipment, over the

Contractor’s methods of determining bid prices, or over competitive bidding, market, or negotiating conditions. ▪ Accordingly, the Architect cannot and does not warrant or represent that bids or prices will not vary from the Owner’s budget or from any estimate by the Architect

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Minimizing Risk

  • How else can a design professional minimize his/her

risk?

– Communication with the Owner/Client ▪ Contract language is one thing… » But make sure the Owner is still AWARE of the scope/limits/role

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Designer’s Own Plans

  • Designer is responsible for own plans and drawings
  • Be mindful not to overstep boundaries
  • Watch out for shortfalls as well!

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Case in Point

  • Design and construction of new jail cell and gym
  • Designer: provided shoring for jail cell decking
  • No shoring detail for gym decking

– Concrete pour takes place, and deck collapses ▪ Two workers seriously injured

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Lawsuit

  • Workers file lawsuit against owner, contractor,

subcontractors, AND architect

– Architect: “I was not even required to provide shoring detail for jail cell decking” – Plaintiff: “Why put it in one place but not the other?”

  • So was it architect’s responsibility to include in both

places?

  • Spoiler alert!!!

– Plaintiffs had expert architect who testified it was designer’s responsibility

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Lesson

  • Don’t extend your own scope
  • Details:

ALL OR NOTHING

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Shop Drawings

  • One of several sets of drawings that are prepared

throughout the design and construction process

  • Prepared by the contractor, subcontractors, or

material suppliers

▪ Show specific and detailed areas of work and how it will fit into the puzzle

  • Fine-tuning method to implement the initial design

concept into the intended final product

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Submittal Process

  • Intended to verify that the interpretation of the

construction documents by the contractors and subcontractors is in compliance with the design intent of the design team

– prior to manufacture and installation of the components identified in the submittal.

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Responsibility with Shop Drawings

  • In General:

– Work detail laid out in contract = design professional’s responsibility – Work detail NOT described in contract = contractor’s responsibility for preparing the detail (and owning up to any defects)

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Clarification

  • Size of building columns and floor beams:

responsibility of the designer

  • Detailing the connections between the two:

responsibility of the contractor

– UNLESS: unique loading requirements exist

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Hyatt Regency Hotel, Kansas City, MO

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Disaster

  • 4th floor skywalk buckles, collapses onto 2nd floor

skywalk, both collapse to ground

  • 114 killed; hundreds injured

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Designer Error

  • Design of hanger rod connections was changed

– Fabricator changed design from one-rod system to a two-rod system to simplify the assembly

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Finger Pointing

  • Fabricator testified that it contacted Engineer for

change approval

  • Engineer denied call ever took place
  • Smoking gun: Fabricator made change to contract’s

Shop Drawings and Erection Drawings

– Engineer received revised Shop Drawing and Erection Drawing… – And returned it with its stamped seal of approval

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Shop Drawings Example

  • Design and construction of a new dining facility on a college

campus

  • Architectural documents called for a metal roof. One type of

metal roof was indicated in the drawings; another type was called for in the specifications

  • Roofer attempted to clarify this discrepancy in the submittal

process.

  • In the midst of the submittal process, the building owner made

the decision that the new roof should visually match the metal roof on another campus building.

  • The shop drawings ultimately approved by the architect

reflected the owner’s request. However, the manufacturer's product data that was approved by the architect required an additional solid substrate that was not called for in the original design documents. Neither a directive to install the additional component nor approval for what would have been the corresponding additional cost was issued.

  • As a result, the solid substrate was never installed, and the roof

leaked.

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

How About “Approved as Noted?”

  • Installation of roofing system on large project

– Roof required to have Class C fire rating – Sub submitted shop drawings to Architect, and Architect approved and forwarded roof system submittal to Sub – Sub made changes and proposed an alternate roofing system – Architect stamped new submittal “Approved as Noted,” with notation that new system must be Class C and that Sub must get certification from manufacturer that roof system is code compliant

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Lawsuit

  • Sub never confirmed with product manufacturer,

installed roof system

  • Surprise, Surprise…

Roof system NOT code compliant

  • Removal and replacement of entire roof system:

$3.5 million

  • Translation: LAWSUIT

– Allegation: Breach of standard of care for “conditionally” approving a non-compliant roof system without determining whether it would meet specified fire rating

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Avoidable?

  • Best Practice: Request contractor to submit confirmation that new

material is code-compliant

  • Put the onus back on contractor
  • Doing so would have avoided litigation here…
  • And if contractor failed to confirm, litigation—if any—would

have been brief

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

So What Gives?

  • Even when you spell it out, litigation can ensue

– Especially with that much $$$ involved

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

What About Installation of Materials?

  • What should the architect do if contacted about

proper installation method for material or product?

– Direct contractor to manufacturer’s own product and installation materials ▪ THAT’S IT! ▪ Don’t overextend your scope!

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

But…

  • If you do provide guidance about installation…

– Make sure it is consistent with manufacturer’s installation instructions!!!

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

What if it’s Broken?

  • If product or material fails to function properly, who’s

to blame???

– Improper substitution: Contractor – Improper installation: Installer – Inherently defective: Manufacturer

  • Designer’s liability: much more limited

– Standard of Care to the rescue – Responsible for using typical skill and care of other designers in preparing plans and specs

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Punchlist

  • Different level of inspection from general observations
  • More detailed to determine whether substantial completion and

final completion are attained

  • A/E is NOT the guarantor of Contractor’s work…

…but there is a higher level of scrutiny

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Contractual Provisions to AVOID

  • Be wary of contract provisions that can increase the

design professional’s potential liability

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Avoid

1) Elevation of Ordinary Standard of Care

  • Class, we’ve been through this…
  • Never guarantee results such as schedule, costs,
  • r performance
  • Never agree to perform to the “highest standards”
  • Not only will this elevate your risk of

liability, but most insurance policies exclude coverage where a designer guarantees or warrants a result!

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Avoid

2) Indemnification of Non-Clients

  • Agreeing to defend and hold harmless the

Owner from claims and damages arising from the designer’s errors and omissions is one thing…

  • But a sneaky owner may try to include its agents,
  • fficers, employees, and even the general contractor

Solution: Limit indemnification obligations to designer’s OWN errors and omissions!

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Avoid

3) Control over Jobsite

  • Avoid scheduling and sequencing any work
  • Avoid jobsite safety responsibilities

If Design Professional does not avoid these, it is now exposed to liability for work site accidents!

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Avoid

4) Absolute Conformance of Job Drawings to Contract Docs

  • Should review shop drawings for conformance

with the general intent of the contract documents

  • Can be held liable for failing to
  • bserve deviations from the design

BUT…Avoid increased responsibility such as reviewing to ensure that they ABSOLUTELY COMPLY with the contract docs

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Risk Transfer

  • Means exactly what it says
  • Several ways for Design Professional to shift risk

– Additional Insured – Indemnification – Limitation of Liability Our focus will be on the last 2

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Indemnity

Indemnity: The obligation to make good any loss or damage another party has incurred or may incur by acting on the party’s behalf or in the party’s benefit

The Indemnitor is the party who, by contract, has agreed to indemnify the Indemnitee from

  • r against a loss

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Anti-Indemnification Statute

  • Illinois public policy prohibits indemnification of a

party by contract for its own negligence

  • Construction Contract Indemnification for Negligence

Act (740 ILCS 35/0.01, et seq.)

– With respect to contracts or agreements, either public

  • r private, for the construction, alteration, repair or

maintenance of a building, structure, highway bridge, viaducts or other work dealing with construction, or for any moving, demolition or excavation connected therewith, every covenant, promise or agreement to indemnify or hold harmless another person from that person’s own negligence is void as against public policy and wholly unenforceable.

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Indemnification Act

– The Indemnification Act will be applied BROADLY ▪ Practically no activity that is even remotely related to construction for which the Act does not apply (such as crane rentals)

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

The Real Effect of Indemnity

  • Waiving Kotecki

– Kotecki: Illinois law that limits an employer’s exposure to amount it paid in worker’s compensation – Can be waived through indemnification provision

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Typical Hold Harmless Agreement

  • “SUB shall indemnify and hold harmless owner,

GC, its agents and employees, from any and all claims, suits, losses and expenses, provided that such claim, suit, loss, or expense is attributable to bodily injury, sickness, disease or death, or injury to property, which is caused by (a) negligence of SUB, its agents, employees, subcontractors, or suppliers; or (b) a defect in material or workmanship of the work or any portion thereof.”

– Result = Kotecki cap waived – Employer’s liability now UNLIMITED

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Desired Inclusion for Design Professional

  • Usually, both owners AND design professionals will

want language that waives Kotecki limits of the employer of an injured worker

  • Best Practice: INCLUDE IT!

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Limitation of Liability

  • Architect/Engineer’s most likely adversary in litigation?

The Owner Limitation of Liability = another avenue to control risk

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Limitation of Liability Clause

  • Means exactly what it says

– Limits or confines the amount of damages that can be obtained from the architect/engineer in judgment

  • r arbitration award

– Will NOT prevent a large judgment against design professional if anyone other than the owner/client wins ▪ Clause only relates to the parties who made the agreement

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

How Can Liability be Limited?

1) Limit exposure to certain $$$ amount

  • Can be achieved by either:
  • Stating specific dollar amount; or
  • Setting the amount to correspond to

professional’s fee

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Example

– Owner agrees, to the fullest extent permitted by law, to limit the liability of Architect to the Owner for any and all claims, losses, costs…so that the total aggregate liability of Architect to Owner shall not exceed Architect’s total fee received for services rendered

  • n the Project. It is intended that this limitation apply to

any and all liability or causes of action however alleged

  • r arising, unless specifically prohibited by law.

▪ Caps liability to amount received

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

How Else Can Liability be Limited?

2) Limit exposure to available insurance

  • Theory: Client should only be able to collect

damages up to the amount of available insurance

  • Protects design professional from personal

exposure (excess judgment)

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Example

  • Owner may recover from Architect on account of any

negligent act, error or omission…which arise or are in any way related to any services performed hereunder, only that amount equal to the insurance proceeds then available from Architect’s professional liability (errors and omissions) policy payable with respect thereto on the date any judgment is entered

– INTENT of parties that Architect’s total liability to Owner is capped by available proceeds

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Why This is Tricky

  • Owner’s perspective:

– Architect has $1M policy – But once Owner files suit… ▪ Attorney’s fees ▪ Expert fees ▪ More attorney’s fees…

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So how much will be left (i.e. available) by judgment???

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Owners Reluctant to Include

  • Puts risk on the Owner

– Typically unwilling to agree to Limitation of Liability clause, especially if paying Architect a large fee

  • But MUST be included in certain situations:

1) Providing free services (i.e. church, nonprofit

  • rganization)

2) Work for relative or friend at low cost 3) Performing work at greatly reduced rates

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Contract Language to the Rescue

  • Thompson v. Gordon

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Background

  • 1991

– Development of shopping mall in Gurnee, IL

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Contract Requirements

  • Project included the need to accommodate expected

increase in traffic

  • Engineer contracted to design:

– 2 ramps from expressway – Replacement bridge deck surface over expressway

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Replacement Bridge Deck

  • Original Bridge Deck: concrete median measuring 6

inches tall x 4 feet wide

  • Replacement Bridge Deck: increased median height

by 1 inch

  • Completed in 1992

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Accident

  • November 1998
  • Thompson family traveling WEST
  • Christine Gordon traveling EAST
  • When…

– Gordon loses control… – Hits the center median… – Catapults into the air… – And lands on top of Thompsons’ car

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Lawsuit

  • Thompsons bring a negligence action against many

defendants…including Engineer

  • Plaintiff alleges that Engineer was negligent in

“failing to design and construct a Jersey barrier”

  • Plaintiff: Jersey barrier would have prevented

Gordon’s car from vaulting into the air when it hit the median

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Litigation

  • Engineer files MSJ

– No Duty to Plaintiff – Contract did NOT require median barrier analysis or design

  • Plaintiff responds

– Expert Engineer: Engineer failed to meet standard of care by failing to include Jersey barrier

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

And so begins the legal journey…

  • Trial Court

– MSJ granted – Scope of work limited to terms of contract

  • Appellate Court

– Reversed – Plaintiff expert testimony establishes Engineer’s breach of duty

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Illinois Supreme Court

IL Supreme Court had to decide:

– whether the contract imposed a professional duty of care on Engineer’s work… – and whether the alleged breach of its duty was subject to expert testimony in order to create a factual question

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Findings

  • IL Supreme Court went right to the contract and its

language

– Standard of Care as set forth in the contract:

»“The degree of skill and diligence normally employed by professional engineers or consultants performing the same or similar services.”

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Supreme Court Analysis

  • 1. Contract only required Engineer to replace the

bridge deck…not improve it (by adding a Jersey barrier)

  • 2. Standard of Care was limited to the degree of skill

and diligence normally employed by engineers performing the same/similar services—here, replacing the bridge deck

  • 3. Because replacing bridge deck did not entail

improving it—including adding or even considering a Jersey barrier—the Appellate Court wrongly allowed expert testimony that expanded Engineer’s duty in the contract

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Added Insult

  • IL Supreme Court cited Appellate Court dissent:

»a duty to investigate the need for an improved median barrier “imposes an obligation on [Engineer] that is not provided for in the contract.” »-a court cannot alter, change, or modify existing terms of a contract OR add new terms or conditions that the parties did not agree to

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Notable Victories in Illinois

Let’s take a look…

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BEARS

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BULLS

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BLACKHAWKS

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SOX

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CUBS

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Blago

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DESIGN PROFESSIONALS

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

So What Does Thompson Mean for Design Professionals?

It ensures that duties cannot be expanded

  • utside the terms of the

contract

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Negotiation Strategies for Design Firms

  • Eliminate or limit contractual indemnity clauses
  • Explicitly exclude defense obligation
  • Explicitly limit defense to claims based solely upon

A/E’s negligence

  • Negotiate Limit of Liability (LOL) on defense
  • bligation if not overall project liability

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Alternative Dispute Resolution

  • Incorporating Alternative Dispute Resolution in the

contract can be beneficial and cost-effective

– 2 different types: 1. Arbitration 2. Mediation

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Arbitration

  • Binding process where parties present witnesses

and evidence to unbiased arbitrator

– Arbitrator usually chosen for his/her expertise in the field – Can be one-person or three-person panel – Courts inclined to enforce valid arbitration clauses

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Good vs. Bad

  • Pros

– Award can be confidential – Less costly than trial – Rules of evidence are relaxed…A LOT

  • Cons

– Very few grounds to appeal – “Split the baby” results are typical – Rules of evidence are relaxed…A LOT

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Mediation

  • Allows parties to reach their own result through

nonbinding discussions

– Assisted by a neutral mediator

  • Mediator does not decide anything

– Simply guides the discussion by pointing out parties’ strengths and weaknesses

  • Usually a one-day joint session, preceded by

submitted position briefs and relevant documents

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Mediation

  • Can occur by agreement at any stage

– Typically after initial written discovery and key fact depositions » i.e. once the case is about to get more expensive

  • Allows the insurer and insured to make the call

– Rather than leaving it up to an arbitrator or jury

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Final Points

  • Contract is within Designer’s control
  • Can be beneficial to try and view important terms or

sections from a hindsight perspective

  • Everything’s negotiable

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Thomas G. Cronin, Esq Gordon & Rees Chicago, IL tcronin@gordonrees.com (312) 980-6770

Conclusion

  • Any questions?

Thomas G. Cronin Gordon & Rees, LLP (312) 980-6770 tcronin@gordonrees.com

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