Loss Control Bulletin

ARCHITECTS AND ENGINEERS PROFESSIONAL LIABILITY INSURANCE

The 10 Principles of Good Practice – Part II

Introduction 6. Keep your client informed

As a design professional, your role This may seem similar to principle can extend to a wide range of areas, #2, Educate your client, but this including original concept and design, mainly deals with managing the project supervision, expert analysis client’s expectations at the outset of and certification, and in some a project. However, keeping the client instances contract administration. informed is important throughout the However, at every step along the duration of a project—particularly way you are exposed to a number of when it comes to identifying problems liability exposures. and risks, and allowing the client to make decisions based on the To help you manage these exposures, consultant’s advice. we’ve developed The 10 Principles of Good Practice. These principles are For example, as a contract To reference our archive of loss prevention materials, claims examples and detailed based on lessons we’ve learned in our administrator, the consultant may product information, please go to our website more than 40 years of claims analysis be dealing with a contractor who is victorinsurance.ca. and risk assessment. In this second accumulating extras on a project. of two bulletins, we’ve outlined Given that the client could ultimately PROGRAM ENDORSED BY the importance of follow-through bear the cost of these extras, the on a project. This can be achieved consultant should identify why the by keeping your client informed; extras are being incurred and raise dealing with issues promptly; keeping the issue as soon as possible with written records; and ensuring the the client. It may be that unforeseen certification process is completed site conditions have lead to additional accurately. We’ve also included some work on a project, or perhaps there real life claims examples to help is a problem with the co-ordination illustrate how adherence to these of the design team and contractors. principles can help you to avoid Whatever the case may be, if the situations where problems spiral client could be impacted by some out of control and to minimize your turn of events, the consultant should exposure to liability. advise the client of the matter and advise on the options available to address it. This way, the client will have an opportunity to make a decision based on the consultant’s advice and will also take some ownership of the solution. Consider the following claim example where a consultant should have identified a risk to his client:

A consultant provided mechanical and electrical engineering services for the renovation of a hospital. This work was within the scope of a larger project for which the consultant had been providing services. At the request of the client, the consultant agreed to retain a particular subconsultant to work on the electrical design of the hospital’s east wing. In the process of retaining this electrical subconsultant, the consultant omitted to draw the client’s attention to the relatively low limits of professional liability more complex and costlier with the Although a delay in dealing with a insurance that the subconsultant passage of time. This is a compelling problem is inadvisable, completely carried. This became a contentious reason why consultants should ignoring a problem, or even worse issue when it was discovered that deal promptly with problems while hiding it, can have an exacerbating the subconsultant’s electrical design carrying out their mandates. effect in the context of a lawsuit. was fraught with deficiencies and From a liability standpoint, a did not meet electrical code. Many To illustrate this point, consider a consultant who chooses to sweep changes were required to address simple scenario where there are problems under the rug can lose the design issues, which lead to deficiencies in the electrical wiring credibility and expect an increase significant delays to the project and running through a wall. It is certainly in liability exposure as a result. So, a claim for damages by the client. more difficult and costly to fix the not only is there a potential cost Unfortunately, the subconsultant wiring after the drywall and other consequence in delaying the solution did not have sufficient insurance to obstructions are installed than to fix to a problem, hiding it can actually cover the damages sought by the it earlier on, while the wall is still impair a consultant’s defence client, causing the consultant to be open and there are no obstructions. in a lawsuit. Conversely, when a exposed to the uninsured portion The same logic can apply to more consultant promptly addresses a of the claimed damages as a result complex matters. problem, good faith is demonstrated, of his contractual liability. Had the With respect to increased costs, which can strengthen the consultant- consultant informed the client of we know that inflation and interest client relationship and help prevent the subconsultant’s low limits, there can factor prominently when there lawsuits. would have been an opportunity is a delay in remedying damages to either convince the client not to suffered by a claimant. Material and retain this subconsultant, or perhaps This is evidenced by the following labour costs tend to increase with require the subconsultant to increase claim example: time, and in civil lawsuits, damages the limit of his insurance. claimed almost always include an A mechanical engineering consultant interest component to them. These provided design services for the 7. Deal promptly with problems factors serve as additional motivation renovation of a hospital. The Victor Canada’s experience in to address problems as early as consultant had underestimated managing claims has demonstrated possible. the weight of a rooftop air handling that not acting on a problem tends to unit and relayed the weight data to result in the problem becoming both the structural consultant for load 2 • Loss Control Bulletin keeping should account for the applicable Statute of Limitations in the jurisdiction where services were provided. The Statute sets a limitation period during which a claim may be brought against a consultant. In this regard, professional consultants should seek advice from legal counsel with respect to the applicability of the Statute of Limitations.

The following tells a story of a professional consultant who did not keep project records:

In 1979, a structural consultant was retained by a prime consultant to provide engineering services for the construction of a commercial calculations. After the structure was electronic records. These records condominium building. There was completed and before the air handling can be field notes, conversations, no written contract in place and the unit was installed, the consultant written correspondence, drawings, structural consultant did not keep became aware of the miscalculated etc. Written records not only help any records from the project. In weight of the air handling unit. Under professional consultants document 2003, a section of the roof collapsed, the circumstances, to reinforce the issues emerging over the course of a causing damages throughout the structure would cause significant project, they may also tell a story that premises. The unit owners filed a delays to the project, not to mention cannot be gleaned from the written lawsuit against a number of parties, the premium costs related to carrying contract. These details are helpful including the structural consultant, to out the work. Realizing the gravity of if a dispute ensues years later, after recover damages suffered as a result the situation, the consultant promptly completion of a project. Without these of the collapse. Evidence with respect contacted Victor for guidance. Victor records, people will rely on their to this project was scarce given the and the consultant developed a recollection of the facts, which can considerable lapse of time since plan whereby the hospital would be fade over time and can differ from construction had been completed. alerted to the issue and a solution person to person. Allegations against the structural negotiated which would allow the Adopting a standardized procedure consultant were that he was negligent work to be completed without any for keeping records is advisable in his inspection of the building after delay. The hospital was appreciative for professional consultants. construction. However, the structural of the consultant’s approach and It can certainly be helpful to a consultant insisted that he did not the ongoing dialogue between the consultant involved in a lawsuit as have any field review mandate and hospital and the consultant ultimately project records may be produced maintained that position during his prevented a lawsuit for extra costs. as documentary evidence, and the examination for discovery. ability to locate and identify these At first, it seemed that the structural 8. Use written records documents is key to preparing a consultant did not face any liability in defence to the lawsuit. Records are a valuable resource to a this matter until another defendant professional consultant. The benefits Records should be kept for as in the action produced a copy of of written contracts were expressed long as a consultant may be found inspection certificates that appeared earlier in principle #3. However, legally responsible for his or her to be issued by the structural throughout a project there are also work. A minimal measure for record consultant. This evidence not only benefits to keeping physical and/or

3 • Loss Control Bulletin of a contractor over the telephone in order to issue certification. This advice was eventually determined to be erroneous. In the second instance, the engineer relied on insufficient information gleaned from photographs of the tank that were taken by another party. Both matters show the importance of a consultant personally witnessing a project before issuing certification.

10. Think before suing for fees

The final principle of good practice offers valuable advice to professional consultants: think before suing for your fees! In our experience, when increased the structural consultant’s a full-time basis, over a fixed number a client fails to pay a consultant for exposure to liability, it also affected of hours or on demand. professional services, it is usually his credibility in the eyes of the because the client has run out of The circumstances behind claims court seeing that he rejected any money, or there are unresolved which relate to certification can such evidence in his testimony. The issues with the consultant’s services. vary considerably. In some cases, matter settled out of court with a Further, when a consultant claims the details of certification were contribution made on behalf of the for unpaid fees, we have found that not set out in a written contract, structural consultant. the client will often file a countersuit leading to confusion. In other for damages as a result of the cases, engineering firms have sent consultant’s alleged negligence. 9. Do not certify what you have inexperienced staff to review work, And, in many cases, the countersuit not seen and as a result, the validity of the will contain allegations of damages certification was questionable. If a consultant is required to certify totaling more than the fees sought by work, it is imperative that the work the professional consultant. be adequately reviewed in person Consider this claim example: prior to issuing certification. Before For one particular engineer, Victor Consider the following claim agreeing to issue certification, it is managed two separate claims example: important to establish the nature of where field review was a contentious the certification required in a written A structural engineer was retained issue. This engineer worked for a contract, so that it is clear and for a home renovation project. firm specializing in the design of specific. For example, if the intent Part of the renovation required the manure pits and storage tanks. In of certification is to ensure only that removal of a number of internal both claims against the engineer, construction has been carried out in walls. The consultant’s mandate damages were claimed in relation general conformance with the design, included ensuring that these walls to cracking concrete slabs in this ought to be expressly set out in were not load-bearing. The work storage tanks. Our investigation the contract. A consultant should also progressed on the project and the revealed that the problems could outline the necessary degree and client produced most of the payments have been averted if the engineer frequency of field review to be carried to the consultant in accordance had been on site to witness the out. To that end, a professional with a payment schedule. However, work carried out by the contractor. consultant may consider specifying an amount of $1,200 remained However, in the first instance, the field review on a part-time basis, on outstanding and, despite the engineer elected to trust the advice

4 • Loss Control Bulletin consultant sending numerous notices, payment was not forthcoming. The consultant filed a claim in small claims court, seeking payment of the fees. A month later, the consultant was served with a claim by the client for $50,000 in damages as a result of the consultant’s alleged failure to notice that one of the walls being removed was load-bearing. The damages claimed by the client included sums for remedial work, additional materials, labour, the return of fees paid to the consultant, interest and legal costs.

In this case, even if the consultant had not sued for the outstanding fees, long way to managing your exposure To learn more about principles 1 it is possible that the client may have to liability and should be considered through 5, read our Loss Control sued the consultant for negligence as minimum standard procedures Bulletin entitled The 10 Principles of anyway. However, rather than suing when providing services to your Good Practice – Part I, available for for fees, the consultant could have clients. download at victorinsurance.ca in the attempted to communicate with the Resource Centre. client, which would have revealed the 1. Sell your firm and your services contentious issue. The consultant fairly. Victor’s loss control program includes annual webcasts, Loss may have lost the opportunity to help 2. Educate your client. the client mitigate damages and Control Bulletins, Risk Management maintain a good client-consultant 3. Insist on an equitable written Advisories and eLearning modules relationship. Furthermore, it may contract. on relevant industry topics. For have been possible to avert a costly 4. Do not play lawyer. more details on oral and written and time-consuming lawsuit. contracts, please refer to our Loss 5. Develop a specific project plan. Control Bulletin entitled When Is a Summary 6. Keep your client informed. Contract a Contract? and our first eLearning course, which is available 7. Deal promptly with problems. In summary, the processes that you to policyholders and the network follow as a design professional can 8. Use written records. of brokers who work with us at have a direct impact on both your 9. Do not certify what you have not victorinsurance.ca/elearning. exposure to claims of negligence seen. or wrongdoing, and the ultimate success of the project. The following 10. Think before suing for fees. principles of good practice can go a

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This publication has been prepared for general information use. It should not be relied upon as legal advice or legal opinion with respect to any specific factual circumstances. © 2019 Victor Insurance Managers Inc.