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ARCHITECTS & ENGINEERS PROFESSIONAL LIABILITY
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RISK MANAGEMENT POINTERSContract Revisions with Subcontractors and Subconsultants
It is critical that you protect yourself under your subcontracts against liability that is attributable to the work or conduct of your sub. The following considerations can make a critical difference in the risk you take on when entering into a subcontract.
• Require the subcontractor or subconsultant to name you as an additional insured under its GL policies. Confirm that the sub’s GL coverage will respond on a primary basis in the event of a claim against you arising out of the sub’s work.
• Seek expansive defense and indemnity provisions in your favor. Ensure that the subcontractor or subconsultant’s indemnity obligation is stated in the clearest terms possible. Confirm whether the state whose law applies has an anti-indemnity statute applicable to construction contracts that could affect the indemnity provisions in your subcontract.
• Be sure that the indemnity provision in the subcontract is at least as broad as, if not broader
than, your indemnity obligations to the project owner. This will protect you from liability which arises out of your sub’s work and for which you are obligated to indemnify the project owner.
• Beware of limitation of liability and waiver of consequential damages provisions, particularly if your agreement with the owner does not contain similar provisions.
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ADA Does Not Preempt State Law Contract Claims, Ninth Circuit Holds
The United States Court of Appeals for the Ninth Circuit recently held that the Americans with Disabilities Act (“ADA”) does not preempt state law claims for contribution. City of L.A. v. AECOM Services, Inc., No. 15¬56606, 2017 WL 1431084 (9th Cir. Apr. 24, 2017). The court reasoned that permitting enforcement of contract claims seeking to hold a contractor liable for duties necessarily delegated to it by contract does not create the preemption problem of insulating public entities from ADA liability, at least when the public entity seeks contribution or indemnification for specific construction or design failures rather than its own failure to implement policies or exercise oversight. This decision conflicts with a recent Illinois appellate court decision finding that the ADA preempts state law contract claims because a public entity has a non-delegable duty to comply with the ADA. Chicago Housing Auth. v. DeStefano & Partners, Ltd., 45 N.E.3d 767 (Ill. App. Ct. 2015), cert. denied, 50 N.E.3d 1138 (Ill. 2016).
TAKE-AWAY:
Make sure your scope of work is clearly defined to exclude compliance with ADA requirements if you do not want to accept the risk associated with a potential anti-discrimination suit against the project owner. Alternatively, ensure that your indemnity obligation is clearly defined to exclude indemnity for ADA compliance.
Contributory Negligence of Indemnitee Does Not Relieve Indemnitor of Duty to Indemnify
A California appellate court recently rejected an indemnitor’s argument that active negligence on the part of the indemnitee prohibits the indemnitee from demanding indemnification from the indemnitor. Oltmans Constr. Co. v. Bayside Interiors, Inc., 215 Cal.Rptr.3d 918 (Cal. Ct. App. 2017). The indemnitor argued that the active negligence of the indemnitee nullified the indemnitor’s obligation to indemnify the indemnitee for damages arising out of the indemnitor’s negligence. The court disagreed, holding that the general rule limiting an actively negligent indemnitee’s right to recover indemnity does not apply if the language of the contract indicates that the parties did not intend for the rule to apply. The indemnity provision at issue required the indemnitor to indemnify the indemnitee for claims arising out of the project except to the extent those claims arise out of the indemnitee’s active negligence. The court noted that this indicates that the parties intended to limit the indemnitee’s right to indemnity only for damages resulting from its own negligence.
TAKE-AWAY:
When drafting indemnity provisions, make sure that the scope of indemnity obligations is clearly stated. If you intend the provision to apply only when the indemnitee is not negligent, be sure the contractual language reflects that intent.
LEGAL TRENDS AND DEVELOPMENTS
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Reference to Wrong Limitations Statute in Tolling Agreement Does Not Toll Limitations Period Under Correct Statute
An Ohio federal court recently held that a professional negligence claim against an engineer is time-barred, despite a tolling agreement purporting to toll the statute of limitations for such a claim. United States v. Osborne, Case No. 1:11-CV-1029, 2017 WL 1135640 (N.D. Ohio March 27, 2017). The tolling agreement at issue specifically stated that the parties agreed to toll the limitations period set forth in a specific statute. However, the statute cited by the parties is limited to malpractice claims against doctors and lawyers and does not apply to professional negligence claims against design professionals. The court found that because the parties specifically stated that they were tolling the statute of limitations under a specific statute, the limitations period under another statute (i.e., the one that applied) was not tolled, and the professional negligence claim against the engineer is therefore time-barred.
TAKE-AWAY:
Seek the advice of counsel when entering into a tolling agreement with your subcontractor or subconsultant to ensure that the language of the agreement is sufficient to toll the statute of limitations for your claim against your sub.
Economic Loss Doctrine Bars Professional Negligence Claim By Contractor Against Design Professional
Maryland’s highest court has affirmed lower court rulings holding that, as a matter of law, in the absence of privity of contract, death, personal injury, property damage, or the risk of death or serious personal injury, no duty of care in tort runs from an engineer or architect to a contractor for purely economic losses on a construction project. Balfour Beatty Infrastructure, Inc. v. Rummel Klepper & Kahl, LLP, 155 A.3d 445 (Md. 2017). The court stated its view that “the complex web of contracts that typically undergirds” a construction project should govern the parties’ respective liabilities because the parties have sufficient opportunity to protect themselves when negotiating their contracts.
TAKE-AWAY:
Be cognizant of how risk will be shifted among the various construction and design professionals participating in the project. Scrutinize your contractual language to confirm whether you may face any direct liability to the contractor.
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ARCHITECTS & ENGINEERS PROFESSIONAL LIABILITY
THB_PROF_AE_03.19
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THB Professional & Financial Risks is a trading style of Thompson Heath & Bond Limited authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, company number 929224. Registered office 107 Leadenhall Street, London EC3A 4AF.
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