Canada: Architects Are Easy Targets For Lawsuits – Frivolous And Otherwise

Any fool with $250 and a typewriter can sue anybody. In my own practice I have seen an architect sued over mechanical defects, a mechanical engineer sued over structural defects and a structural engineer sued over building envelope defects. A contractor often has no money and insurance will not cover workmanship defects, so the plaintiff will try to place liability on insured "deep pockets" defendants such as architects and engineers.

As a design professional, you cannot control whether you are sued, but you can control your exposure and outcome by managing risks from the outset. Wherever possible, a proposal for services, an engagement letter or a contract for your services should define a monetary limit to exposure and limit the types of claims. The monetary limit should be no higher than the policy limit for a single claim under your professional liability insurance.

As well, whenever possible, you should exclude liability for "consequential damages," such as loss of profits expected from a delayed project. Damages of this kind can break your company if they exceed your insurance coverage. If you are acting as a sub-consultant, make sure that any limits of liability negotiated by the prime consultant apply to you as well.

An architect or engineer may not be able to negotiate the most favourable terms for limiting liability, but a design professional has complete control over the definition of the scope of its services. Lawsuits are often not about the design, but about as-built construction relative to the design and adequacy of the field review. These topics are often ignored in an engagement letter. The architect should exclude responsibility for changes made without its approval.2

The number, purpose and scope of field reviews should be defined, and should expressly state that a review is not an inspection. The owner or contractor must be assigned the responsibility to call for a field review at defined stages. Too often a required field review is called too late or is not called at all. Architects or engineers are then asked to provide a certification of field work that they should not issue, and often lack the resolve to require finished work to be opened up for review.3

If you are sued, or if there is even a threat of a lawsuit, notify your insurer. An often overlooked benefit of professional liability insurance is that it pays the cost of defence of any lawsuit (subject to a deductible that may apply to defence costs on some policies).4 Counsel appointed by your insurer can give you guidance in dealing with the claim and can minimize the impact of the legal process on you and your practice.5 Experienced defence counsel will know how to set the stage for a higher award of costs against the plaintiff if thecourt dismisses the claim, but those costs will go to the insurer who is paying for the defence.

Due to the prohibitive cost of going to trial, most claims are resolved through mediation. Settlement often requires a modest contribution by all defendants regardless of fault. Buying your way out of a lawsuit is often the most practical and cost effective solution. If there is no fault at all by the design professional, the payment will be made entirely by the insurer, as the insurer is paying to reduce its defence expense. If there is some exposure to the design professional, it will have to contribute some part of its deductible,6 depending upon the policy provisions.

I am often asked about recovering the internal costs incurred by an architect or engineer in dealing with such claims. Unfortunately, Canadian law does not recognize this kind of compensation.

In conclusion, become familiar with the provisions in the standard forms of Client– Architect agreement provided by the OAA or the RAIC. Get legal advice regarding your standard engagement letter if you do not use the standard forms of agreement provided by the OAA or RAIC. Get legal advice regarding any supplementary conditions or amendments to these standard forms of agreement prepared by yourself, a client or sub-consultant. Talk to your insurer about coverage concerns or insurance requirements specified by a client; and be prepared to say "No!" to risks that exceed your insurance coverage.

Footnotes

1. Many architects would like to imagine that they are the subject of a "frivolous" lawsuit. But regardless of merit, Pro-Demnity must provide a defence, if only to get the action dismissed. In reality, few actions are truly "frivolous", notwithstanding that some (or even many) aspects of the claim may turn out to be without particular merit.

2. Refer to Pro-Demnity Bulletin: Dealing with Substitutions to Your Design, December 31, 2016.

3. Claims related to insufficient or negligent field review services have been identified as one of the highest claim categories, across most building types. This research has been the subject of Loss Prevention seminars over the past year, starting in the fall of 2016. Pro-Demnity and the OAA have prepared a new Claims Experience Workbook including checklists aimed at reducing claims related to field review.

4. The Pro-Demnity policy provided to Ontario architects under our mandatory regime does not apply the deductible to defence costs, although excess policies available from other insurers may do so, particularly for higher claim limits.

5. Pro-Demnity is owned by the architectural profession in Ontario. Our claims staff (and the counsel we retain) works to minimize impact on our insureds and their practices.

6. Pro-Demnity policies include a "disappearing deductible" that has the architect paying a pro-rata share of its full deductible for damages paid up to $250,000. For example, if damages amount to $100,000 (40% of $250,000), the architect pays only 40% of the deductible. 100% of the deductible applies for damages at or above $250,000

Previously published in Prodemnity, The Straight Line, Issue 5, December 2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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