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2011 Professional Risk Symposium: EPL, E&O and
Fiduciary
THE CHANGING LIABILITY LANDSCAPE FOR DESIGN
PROFESSIONALS
Chicago, IL ~ March 24 & 25, 2011
THE CHANGING LIABILITY LANDSCAPE FOR DESIGN
PROFESSIONALS
Moderator:Christopher Calnon, Vice President, A&E Product Manager, ACE USA
Panelists:Marty Andrejko, CPG, CRIS, National Underwriting Director, Zurich
Ira Chilton, NCARB, Chief Development Officer, ProjX
Brian K. Stewart, Esq., Partner, Collins Collins Muir & Stewart LLP
Kenneth J. Wittman, Senior Vice President, Dealey, Renton & Associates
Agenda
• Sustainable Design & LEED• Indemnification & Case Law• Integrated Project Delivery• Closing Thoughts • Questions
Sustainable Design & Leadership in Energy and Environmental Design
What is driving the Sustainable Design’s
Increased Momentum?
• ECONOMY: Non-renewable resources more expensive
• SOCIAL: Movements for environmental consciousness
• CONSERVATION: Energy; water; and materials
• GOVERNMENT: Job Creation; balance of trade
Why Designers of the Built Environment are Engaged?
• ECONOMY: A demand has been created for sustainability & IPD
• SOCIAL: Study state economy is desired in the developed nations
• CONSERVATION: Reduction, reuse, & recycling of the natural resources
• GOVERNMENT: Mandates drive requirements for contracts
How is the building environment being
impacted?
• ECONOMY: A demand for durability; interactivity; & technological efficiency.
• SOCIAL: A measurable matrix is desired for sustainability improvements
• CONSERVATION: A measurable matrix is desired for conservation
• GOVERNMENT: Mandates attached to “existing matrix” certifications
Why is GBC (LEED) as an existing matrix certifier
problematic?
• ECONOMY: The marketplace is responding independently of the GBC
• SOCIAL: The GBC LEED process is being challenged as an administrative encumbrance & unnecessary expense
• CONSERVATION: The growth and need for commissioning & IPD
• GOVERNMENT: Still mandating LEED
Gifford v. USGBC
• October 2010 – Suit filed in Federal Court in New York.
• Filed as class action – alleged that the USGBC is fraudulently misleading consumers concerning efficient design in LEED certified buildings.
• Suit predicated on a 2008 study by New Buildings Institute and USGBC.
Gifford v. USGBC
• No longer a class action • Plaintiffs are now three engineers and an
architect• Still alleges USGBC making false claims
concerning LEED certification and efficiency• Seeks permanent injunctive relief to stop
USGBC from claims of higher energy efficiency with LEED certified buildings
• USGBC has a monopoly with LEED
Gifford v. USGBC
• Also seeks to recover DAMAGES =USGBC profit from alleged unlawful conduct + fees and costs
• Although no longer a class action, it is still a direct attack on USGBC and LEED
• USGBC response is due by April 7th, 2011. Stay tuned…
Sustainable DesignRisk Management and
Insurance Issues• Changing Scope of service and standard of
care• Potential for change orders and extras• DP exposed to liability for failed owner
expectations of energy efficient and savings• Potential conflicts in codes and standards• Scope to include achievement of a LEED
Certification….over promise/under deliver• No apparent coverage issues…yet…except
warranties and guarantees
Indemnification: Crawford vs. Weathershild
UDC vs. CH2Mill
CALIFORNIA INDEMNITY – CATCHING A REAL GNARLY
WAVE!
• RECENT CASE LAW WITH POTENTIAL TO SPREAD
• BAD FACTS = BAD LAW• CONTRACTUAL LIABLITY CREATES
COVERAGE MESS• THE ECONOMY AND TRENDS
Crawford v. Weather Shield (2008) 44 Cal.4th 541
• Weather Shield (WS) supplied windows to Developer (DEV) for a residential project
• Contract between WS and DEV required WS to defend and indemnify DEV for “all claims. . . growing out of” WS’s scope of work.
• Construction defect lawsuit filed by 220 homeowners
• DEV sought contractual indemnity from WS
Crawford - Continued
• Jury found WS was NOT negligent • Court still ordered WS to pay defense costs• CA Supreme Court case• Court found WS had an immediate duty to defend• Defense was independent of the duty to indemnify• Many thought Crawford only applied to
contractors/suppliers
UDC - Universal Development v. CH2M Hill (2010)
181 Cal.App.4th 10
• Condo Project• CH2M-Hill (ENG) provided engineering services• BAD Contract language • ENG to indemnify and defend Owner against “any
suit, action or demand” brought “on any claim or demand herein.”
• Owner sued by homeowners and tendered to ENG for defense and indemnity
• ENG found NOT negligent at trial• BUT court ordered ENG to pay $550K regardless!
CHM2-HILL - continued
CH2M-HILL holdings:• A promise to indemnify “implicitly embraces
the cost of defense” (unless a contrary intention appears - See CA Civil Code 2778)
• Duty to defend is separate from the obligation to indemnify and a finding of negligence is not required!
• Duty to defend necessarily arises as soon as the claims are made
IndemnitiesRisk Management and
Insurance Issues
• Defense obligation not insured• Corporate obligation with a long tail• Increased risk for M & A• Significant exposure for large firms• With one exception, underwriters are not
willing to insure the exposure• Not just a ‘California’ problem
Integrated Project Deliver (IDP)
Integrated Project Delivery (IPD)
…is a project delivery approach that integrates people, systems, business structures and practices into a process that collaboratively harnesses the talents and insights of all participants to optimize project results, increase value to the owner, reduce waste, and maximize efficiency through all phases of design fabrication, and construction.
Source: Integrated Project Delivery: A Guide (2007, AIA and AIA California Council)
IPD vs. Traditional Project Delivery
• Teams: Integrated vs. Fragmented• Process: Shared vs. Siloed• Risk: Shared vs Transferred• Compensation: Team vs Individual• Technology: BIM vs CAD• Agreements: Collaborative vs Unilateral.…Adapted from: Integrated Project Delivery: A Guide (2007, AIA
and AIA California Council)
IPD Contractual Principles
• Parties are equals• Shared risk/reweard• Liability waivers• Fiscal transparency• Early involvement• Intensified design• Jointly developed project criteria• Collaborative decision-makingSource: Integrated Project Delivery for Public and Private
Owners (2010, NASFA, COAA, APPA, AGC, and AIA)
IPD Behavioral Principles
• Mutual respect and trust• Willingness to collaborate• Open communicationSource: Integrated Project Delivery for Public and Private
Owners (2010, NASFA, COAA, APPA, AGC, and AIA)
Integrated Project Delivery Risk Management and
Insurance Issues
• Single Purpose Entity?• Multi-party agreement• Significant contract liability vs. insurance
coverage issues• Blurred roles and responsibilities• Customized program for each project• PL insurers generally not creating solutions• Wrap-up program may be the best answer• Post IPD agreement liability management
Closing Thoughts
Questions?
THE CHANGING LIABILITY LANDSCAPE FOR DESIGN
PROFESSIONALS
Moderator:Christopher Calnon, Vice President, A&E Product Manager, ACE USA
Panelists:Marty Andrejko, CPG, CRIS, National Underwriting Director, Zurich
Ira Chilton, NCARB, Chief Development Officer, ProjX
Brian K. Stewart, Esq., Partner, Collins Collins Muir & Stewart LLP
Kenneth J. Wittman, Senior Vice President, Dealey, Renton & Associates