Litigation Lessons from 2017

Posted on: March 26, 2018 by Professional Underwriters Agency

In 2017, a booming economy and spike in construction brought many design professionals a gross billings increase. Despite the larger workflow, most benefited from a highly competitive professional liability marketplace as insurance rates declined. However, adverse claims experiences kept some firms’ rates high. To avoid making the same mistakes, design professionals must keep abreast of recent claim trends in the industry.

The three cases below involve everyday situations encountered by design professionals and contractors, and that valuable lessons can be learned by examining these cases.

1. Bainbridge St. Elmo Bethesda Apartments, LLC v. White Flint Express Realty Group, 454 Md. 475, 164 A. 3d 978, (Maryland 2017)

In this case, an indemnity clause in an easement agreement required the indemnitor (contractor) to pay indemnitee’s (adjoining property owner) first party attorney fees incurred in suing contractor property damages. This was a “crane swing, tie back and swing scaffold easement” agreement granting the contractor an easement during construction for the property adjoining a high-rise tower it was constructing. During excavation, damages occurred to the foundation of the neighboring buildings.

Although indemnity is generally for third party claims and the losses resulting from such claims, the court found the clause in this instance also applied to first party claims for the owner’s own losses and damages, and this included the right of the property owner to recover its attorney fees.

The Court parsed the actual words and phrases and punctuation of the indemnification clause to find that although the words “defend and hold harmless” refer to third-party claims, this did not serve as a limitation on the breadth of what was covered by the promise also included in the clause, i.e., “Indemnification.”

LESSON: Clarify indemnity clause to apply only to damages from third party claims.

2. Zirkelbach Construction, Inc. v. DOWL, LLC, 389 Mont. 8 (Montana 2017)

This case involved a limitation of liability (LOL) clause that represented only 8% of the design professional’s $650,000 fee. The clause capped the DP’s liability without exempting or exculpating the designer from ALL liability, which did not violate the state law (if the DP had assumed no liability, the state’s law would have been violated). The contractor sued the DP, claiming that DP’s negligence resulted in a ~$1.2MIL loss. The court upheld the LOL explaining that the principal of freedom to contract and importance of honoring mutually agreed upon terms of contract must be upheld even if it’s burdensome or one-sided.

LESSON: LOL clauses must not relieve the design professional from all liability. If they maintains some liability, courts will honor mutually agreed upon terms.

3. William H. Gordon Associates, Inc. v. Heritage Fellowship 291 Va.122 (2016)

In this case, an engineering firm designed site plans for a rain tank system to be buried under a parking lot for a new church sanctuary. As the contractor began construction, he inquired (via RFI) about the suitability of the tank for the location and included questions about installation and performance. Without addressing the performance issues or reevaluating the choice of the tank system, the engineer referred to the manufacturer’s drawings to assure the contractor that their ground water concerns would not impact the tank’s functionality.

In litigation, trial court found the engineer breached its professional standard of care by: (1) failing to conduct due diligence regarding tank suitability; (2) incorporating a manufacturer’s specifications into its own plan without verifying them; and (3) failing to respond to appropriate questions during construction.

LESSON: Design Professionals must have a process for quickly responding to RFI’s.

Posted in: Professional Liability