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