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1 Good Samaritan Services Risk Management Hurricane Sandy devastated much of the Northeast United States. One of the calls to action in its aftermath is to inspect buildings and other structures to ensure their safe usage. Architects and engineers may be required under their respective licensure board rules of professional conduct to protect public health, safety, and welfare. In the aftermath of a natural disaster or other catastrophic event, architectural and engineering expertise and skills are frequently solicited to provide structural, mechanical, electrical, or other architectural or engineering services to determine the integrity of buildings, structures, utilities, roads or other infrastructure that may have been damaged by such events. Architects and engineers are often called upon to voluntarily help their communities, states, and the nation in times of need, often without charging a fee. Architects and engineers could well face substantial liability exposure when performing what is often called Good Samaritan services. A brief visual observation without invasive investigation of a structure, bridge, or other elements of infrastructure by its non exhaustive nature and relative brevity may lead to professional opinions that turn out to be in error notwithstanding the experience and skill exercised by most design professionals. Many states have recognized this liability risk and have considered laws to provide immunity to professionals for their Good Samaritan services. However, only a small number of states have passed such legislation, known as "Good Samaritan" statues, to protect architects and engineers. As a result in many states architects and engineers who want to heed the call for their assistance face risk of liability for doing the right thing. Travelers believes that Good Samaritan service is part of serving our communities and suggests that its architect and engineer insureds consider amending their standard contracts when providing Good Samaritan services. First, make sure you are clear as to whom you are providing the service. If requested by public entities, such a municipality or utility district, inquire if they are willing to provide you with governmental immunity to carry out the work free from worry of claims. If so this should be confirmed in writing, preferably a written contract. Although private parties are not in a position to offer immunity they can agree to limit your liability as to them and to hold you harmless and indemnify you as to third party claims. A written contract setting forth these risk management provisions is strongly recommended. A relatively brief form of written agreement can be drafted to expedite the work. A clearly defined scope of services is essential, especially for a limited engagement to provide observation only based reports. A provision making it clear that you are providing the service exclusively for the client that requested it is recommended. The following are examples of provisions you may wish to consider when entering into a contract for Good Samaritan services (Please consult with your normal business attorney regarding the suitability, use or alteration of any proposed language which is not provided as legal advice but is provided as general information only): Limitation of Liability In consideration of the request of (client s name) to conduct visual observation of certain structures, buildings or other facilities for structural integrity or non structural components thereof affecting public health and safety and in consideration of CONSULTANT S agreement to provide such Good Samaritan professional services on an expedited basis in response to the (name) natural disaster (or other catastrophic event) the total aggregate liability of the CONSULTANT arising out of the performance or breach of any task under this AGREEMENT shall not exceed the compensation paid to the engineer hereunder from which the CONSULTANT S liability arises. 1

2 [Alternatively, if work is provided without fee: shall not exceed $ ] Notwithstanding any other provision of this agreement, CONSULTANT shall have no liability to the CLIENT for contingent, consequential or other indirect damages including, without limitation, damages for loss of use, revenue or profit; operating costs and facility down time; or other business interruption losses, however the same may be caused. The limitations and exclusions of liability set forth in this LIMITATION OF LIABILITY section shall apply regardless of fault, breach of contract, tort (including negligence), strict liability, personal liability or otherwise of CONSULTANT, its employees or sub consultants. Indemnity In consideration of the request of (client s name) to conduct visual observation of certain structures, buildings or other facilities for structural integrity or non structural components thereof affecting public health and safety and in consideration of CONSULTANT S agreement to provide such Good Samaritan professional services on an expedited basis in response to the (name) natural disaster (or other catastrophic event) and in addition, and notwithstanding any other provisions of this Agreement, the Client agrees, to the fullest extent permitted by law, to defend, indemnify and hold harmless the CONSULTANT, its officers, shareholders, directors, employees and sub consultants (collectively, Engineer) against all claims, damages, liabilities or costs including reasonable attorneys' fees and defense costs, arising out of or in any way connected with this agreement to provide Good Samaritan services, excepting only those claims, damages, liabilities or costs caused by the gross negligent acts, errors or omissions or willful failure to act by the Engineer. Immunity Provision (for contract with public entity) Consultant, who voluntarily, without compensation (other than expense reimbursement), provides architectural, structural, electrical, mechanical, or other design professional services related to a declared national, state, or local emergency caused by an earthquake, hurricane, tornado, fire, explosion, collapse, or other similar disaster or catastrophic event, at the request of or with the approval of a national, state, or local public official, law enforcement official, public safety official, or building inspection official believed by the registered architect or professional engineer to be acting in an official capacity, shall not be liable for any personal injury, wrongful death, property damage, economic loss or other loss of any nature related to the registered architect's or professional engineer's acts, errors, or omissions in the performance of any architectural or engineering services for any structure, building, facility, project utility, equipment, machine, process, piping, or other system, either publicly or privately owned. The immunity provided in this Section shall apply only to a voluntary architectural or engineering service(s) that occurs during the emergency or within 90 days following the end of the period for an emergency, disaster, or catastrophic event, unless extended by an executive order issued by the Governor under the Governor's emergency executive powers. Nothing in this Section shall provide immunity for wanton, willful, or intentional misconduct. Limitation as to Intended Client and Scope of Services Consultant s services are intended for the Client s sole use and benefit and solely for the Client s use of the [subject building, etc]. Except as agreed in writing, Consultant s services and work product shall not be used or relied on by any other person or entity, or for any purpose following substantial completion of the services rendered. Consultant s services shall be limited to those expressly set forth in this agreement [cite scope of services section] and Consultant shall have no other obligations or responsibilities for this engagement except as agreed to in writing or as provided for in 2

3 this agreement. All of Consultant s actions and communications relative to this engagement shall be subject to this agreement. Some additional risk management considerations bear mentioning. If you are asked as an employee or member of a design firm to donate your services on a moonlighting basis, that is, outside of your duties to your employer, you may be providing such services without insurance coverage since our policy defines an insured person as: K. Insured Person means any natural person who is an owner, partner, member, shareholder or employee of the named insured, provided that such person is acting within the scope of their duties on behalf of the Named Insured. [Emphasis added]. Therefore, if the named insured asserts that an employee s Good Samaritan work was not within the scope of their duties for that firm there would be no coverage for such moonlighting services in the event a claim is made. Work that is not on a moonlighting basis should be confirmed in writing by a contract as discussed. Finally, please remember that your Travelers policy provides coverage for professional services rendered by you within the scope of your employment on a Good Samaritan basis and that Travelers offers this risk management advice to help protect you should you provide pro bono service during this or the next emergency. 3

4 Risk Management Considerations for Design Professionals Engaging in Joint Ventures 4 Daniel C. Poteet, Esq.,Donovan Hatem LLP Design professionals may, for a variety of reasons, contemplate entering into or creating a joint venture with one or more additional firms. Broadly speaking, a joint venture ( JV ) is understood to be a single enterprise that is created for a common purpose of the JV partners, which shares in profits and losses, and includes the right of all partners to the JC to participate in managing the JV. Most often, design professionals will form a JV to pursue a particular project as a single entity and thereby utilize each JV partner s skills and experience in the proposal, or for some other limited purpose (though there may be occasions where an ongoing JV would be advantageous to comport with applicable licensure or registration requirements). There are several risk management issues that Design professionals will want to keep in mind when deciding whether and how to set up a JV. Those issues include both internal and external liabilities and issues with respect to the JV. The discussion below highlights issues to consider relative to the management, operational, and internal and external liabilities that can arise through JV participation, all of which combine to require careful balancing of business, legal, and insurance considerations. In terms of internal issues to consider, the partners will need to define what role each partner will have in the management of the JV, what funding each partner will contribute for the JV s operating expenses, allocation of each partner s scopes of services for the JV s engagement, and allocation of the JV s profits and losses. The partners also should be cognizant of whether applicable licensing and registration requirements permit and/or require registration of the JV for the purposes for which the JV is formed. Joint venture partners should also be alert to the external liabilities to the JV s client or to other third parties that could arise out of participation in a JV. The primary difference between participation as a JV partner as opposed prime/sub consultant relationship on a project is that JV partners are subject to joint and several liability arising out of the JV s services, acts, errors, and omissions as to third parties (this is applicable to both professional and nonprofessional liabilities). Practically speaking, that means each JV partner could be held fully liable for the JV s liability to a third party, even if the JV s liability arises out of another JV partner s performance or conduct. The JV as a whole can, to some extent, manage third party liability and risk through its agreement with its client, as would be the case for a single entity. That would include familiar risk management topics to design professionals, such as contractual language defining a reasonable standard, negligence based indemnity, appropriate limitations relative to construction phase services and responsibilities, rights to rely on information relative to existing site conditions, and a limitation of liability if obtainable. However, the JV partners can also take steps manage this outward liability though their agreement that forms the JV. The JV partners should consider whether they have adequate professional liability insurance in place to protect against the JV s exposure to its client and other third parties. Professional liability insurance policies may be written to cover liability that arises through participation in a JV as part of their standard coverage, but the JV partners should require

5 verification from each of the JV partners that each partner carries professional liability insurance of a mutually agreeable limit and, further, that the policy will insure against JV liability or has had an appropriate endorsement for such coverage added to the policy. The JV partners may also wish to explore whether a professional liability policy held by the JV itself is an economically viable option. The JV partners also will benefit from organizing among themselves how to handle claims against the JV. This would usually involve a joint defense agreement, where each partner agrees to cooperate and participate in and share in the costs of defending claims against the JV. Inclusion of the joint defense agreement usually facilitates the partners ability to use a single law firm in responding to claims and to work collaboratively in the defense without sacrificing the attorney client privilege or other legal protections, thus leading to a more coherent and efficient defense. Since joint and several liability has the potential to leave one partner exposed for more than its fair share of the JV s liability, a specific allocation of insurance deductible contributions may simplify management of the defense. The practicality of a specific percentage for sharing in claims expenses within the JV agreement may depend on how discrete each partner s role within the JV is. Where similar firms are forming the JV to perform similar services, then cost sharing in proportion to each partner s stake in the JV may be easily agreed and implemented. Where the JV partners each perform separate and distinct tasks, there is greater potential for a claim to arise clearly out of a single partner s responsibility. In this latter scenario, it may be better to defer the cost sharing decision to the JV s management committee on a case by case basis. Joint ventures also invite consideration of two levels of insurability consciousness. The first is related to the JV s agreement with its client. As noted above, if the JV is subject to contractual requirements that are not insurable under professional liability policies, such as an elevated standard of care or an indemnity obligation that does not require negligence as a trigger, then those same uninsurable obligations will flow to each of the JV partners. In that case, joint and several liability increases the risk of disproportionate harm to the partners that have minimal connection to cause of the claim. Accordingly, JV partners will be well served to be mindful of the terms of the JV s agreement with its client, given that a partner with even a 1% stake in the JV could be subject to the entire liability for a claim arising from another partner s responsibilities. The JV partners should also be careful in how they arrange for indemnifying each other where some partners are damaged by claims arising from other partners responsibilities. If the partners choose to incorporate a mechanism where they will indemnify each other for losses caused by others, the partners should bear in mind the losses arising from professional services would still be subject to negligence based indemnity and standard of care considerations to be insurable. So, percentage based reimbursement or indemnity obligations within the JV may subject the applicable partner to the same sorts of insurability concerns that arise in client agreements. 5

6 Limitation of Liability Clauses William S. Thomas, Pitzer Snodgrass, P.C. Introduction On June 16, 1887, 150 years ago, Mr. Frank Primrose walked into the Philadelphia Western Union office with an encoded message for his agent dispatched to Ellis, Kansas to purchase wool. The message was sent, but no reply message was asked for, or paid for. Instead of sitting tight for further word, (because Primrose had just purchased all the wool he needed), his agent began to buy up all the wool he could, assuming those were his instructions. However, Western Union made a mistake in transcribing only one letter of the message, which made a huge difference in the content of the code they were using. All of this cost Mr. Primrose $20,000.00, a handsome sum in those times, and he sued Western Union for their mistake. However, his case was not any more successful than his initial message attempt, because the Western Union agreement contained an olde fashioned limitation of liability provision, which dictated the damages that could be recovered for a mistake in an unrepeated message (one sent, but which was not repeated back to the sender to verify it was transcribed accurately), was the cost of sending the original message, to Mr. Primrose, $1.15. The Supreme Court of the land, in the case Primrose v. Western Union Tel. Co., 154 U.S. 1 (1894), held the limitation of liability clause enforceable because it was a proper and lawful mode of securing a due proportion between the amount for which the carrier may be responsible and the freight he receives, and of protecting himself against extravagant and fanciful valuations. Many industry form documents and custom construction contracts contain provisions shifting or limiting the respective parties risks. One of the main risk limiting provisions seen primarily in the terms and conditions of professional service agreements is the limitation of liability clause ( LoL clause). These clauses generally establish the maximum liability or exposure of the design professional if there is a claim. The purpose of these clauses is to recognize the proportional role of the professional service provider in the project and limit their liability according to the level of compensation received. If enforceable, the clause will serve to cap a party s liability for damages to an amount certain. Are they Enforceable? The Answer Depends Upon Your State s Law While these provisions are commonplace, not all U.S. jurisdictions find them enforceable. Though many states enforce them, still others hold them unenforceable unless properly worded, reviewing them under a strict scrutiny standard. Some states find them totally unenforceable for reasons ranging from violation of that state s anti indemnity statutes to public policy reasons. [A summary table, Table 1.0, at the end of this document, compiles relevant case law and statutes on these clauses from the 50 states.] Generally speaking, in order to contractually limit damages for a party s future conduct, the contractual language at issue must be: 1) clear, 2) unambiguous, 3) unmistakable and 4) conspicuous, to be enforceable. While a contractual clause limiting the amount of damages that may be recovered for the acts of a party (limitation of liability clause) versus 6

7 one that totally exonerates a party from its future conduct (exculpatory clause) are not exactly the same, some courts categorize both such clauses as exculpatory clauses. An exculpatory clause is one that relieves a party from liability resulting from a negligent or wrongful act. Generally, exculpatory clauses in contracts are disfavored under the law of most states, and such contract provisions are strictly construed against the party claiming the benefit of the clause. Courts are reluctant to enforce contracts that relieve parties from the effects of their future acts, because, policy considerations and common sense tell you that, if exonerated, they will not use the same level of care they otherwise might. However, a limitation of liability clause simply places a fixed cap on the amount of damages that may be recovered against a contracting party in the event of a claim. Generally, courts hold that such clauses are not per se against public policy, but several states are more protective, and many have enacted legislation, by way of their anti indemnity statutes that hold such clauses void and unenforceable. In some situations, exculpatory clauses have been held to be invalid under particular statutory provisions and in other instances because the contract is one affected with a public interest. Statutory restrictions which preclude their use hold that statutory liability for negligence cannot be contracted away. Courts will analogize the clause to an indemnity provision for any unrecovered amounts over the liability cap, which results in one party indemnifying the other for their sole negligence. This generally runs afoul of an anti indemnity statute, invalidating the clause. Where the parties to a contract are sophisticated business entities dealing at arm s length, the limitation is reasonable in relation to the design professional s fee, and the damages are purely economic (versus a personal injury claim), most states will enforce a contract s limitation of liability clause. Enforceability of Limitation of Liability Clauses There are several principles that emerge from those states that find limitation of liability clauses enforceable. As a rule, most states allowing them strictly construe them against the beneficiary of the clause. The clause must still meet the above four language requirements. However, a theme from these cases is that the courts are not in a position to rewrite sophisticated parties business agreements, and will generally only enforce them as written. In other words, they must of themselves completely enumerate all of the instances where the liability of the design professional is to be limited. Whether a claim arises out of negligence or breach of contract, the clause must address any circumstance for a potential claim, or the Courts will not enforce them. (If the clause only mentions negligence, then a breach of contract claim could be outside the protection of the clause, as an example). The Courts will not re write the contract, and will strictly construe them against the party relying on them, limiting them to their exact language. Some courts have held that, in the absence of evidence of separate negotiation or bargaining for the clause at issue, it will not be enforced. Some require evidence of separate consideration, or monetary recognition, for the limitation of liability clause. Other courts have held that, if the clause is not conspicuous, is set out along with several other numbered paragraphs, is in the same typeface and not highlighted in any way, it is not enforceable. States that refuse to enforce the clauses do so for a number of reasons, including finding the clauses violative of the specific state s anti indemnity statute, or holding that they are unenforceable as against public policy. Due to the professional status of the designer, these states hold there exist extra contractual duties that require invalidating 7

8 these clauses. Some hold that claims of professional negligence operate outside of a contract, and so contract defenses simply are not available to limit liability in any way. Risk Management Take Aways for Drafting Effective Limitation of Liability Clauses There are certain essential elements to any limitation of liability clause. Initially, it is important the clause be negotiated. This can be accomplished in several different ways. Use of pre printed forms with blanks to fill in the appropriate liability caps (using either a standard figure, like $50,000.00, or the professional's fee, whichever is higher, or some other limit which meaningfully takes into consideration the potential damages on the project), evidences the fact the clause was discussed. Highlighting the language in the agreement with different typeface, or bold print, or having a separate signature or initial block adjacent to the limitation of liability language will show it was conspicuous, negotiated and explicitly accepted. All too many times, I have seen a well written LoL clause invalidated or ignored by a judge because a design professional failed to obtain a signed copy of its proposal letter or executed work authorization form which incorporated the terms and conditions containing the clause. Please remember: although you may have a handshake agreement, you do not have an enforceable contract with defenses you can use in response to a claim until the document is signed, and you should not begin work without a signed agreement. Cases enforcing these clauses focus on the simple, clear and unambiguous nature of the language at issue. Therefore, the language must specifically state that it is a release of future negligence, breach of contract or other theory of recovery in order for the clause to be an effective waiver of these claims. General language releasing future claims will not suffice. There must also be evidence of relatively equal bargaining power during contract negotiation, not a take it or leave it situation. When dealing with members of the general public, then, great care should be used with the clause to show it was understood and accepted, versus dealing with a sophisticated business entity at arm s length. Even following these suggestions does not guarantee a court will enforce the clause as written. These clauses will be subjected to heavy scrutiny. While these are simply suggestions, you should of course obtain the assistance of counsel in your respective jurisdiction to make sure that your limitation of liability language complies with the exact letter of the law in the subject state. Most importantly, the design professional must be open to communicating with clients about the appropriate proportion of the potential responsibilities, liabilities and risk/reward that the project offers to all participants, so these limitations make much more sense in the context of who really benefits and who suffers, and who is best situated to deal with the risks that will undoubtedly arise as the project progresses. Sample Limitation of Liability Language While there is no standard AIA or industry form document which contains limitation of liability provision language, most of them are proposed as a custom term added to these documents by design professionals. Most read along the lines of the following: In recognition of the relative risks and benefits of the Project to both the Client and the Design Professional, the risks have been allocated such that the Client agrees, to the fullest extent permitted by law, to limit the liability 8

9 of the Design Professional and Design Professional s officers, directors, partners, employees, shareholders, owners and subconsultants for any and all claims, losses, costs, damages of any nature whatsoever whether arising from breach of contract, negligence, or other common law or statutory theory of recovery, or claims expenses from any cause or causes, including attorney s fees and costs and expert witness fees and costs, so that the total aggregate liability of the Design Professional and Design Professional s officers, directors, partners, employees, shareholders, owners and subconsultants shall not exceed $, or the Design Professional s total fee for services rendered on the Project, whichever amount is greater. It is intended that this limitation apply to any and all liability or cause of action however alleged or arising, unless otherwise prohibited by law, including but not limited to negligence, breach of contract, or any other claim whether in tort, contract or equity. If the Client does not wish to limit professional liability to this sum, if the Design Professional agrees to waive this limitation upon receiving Client s written request, and Client agrees to pay an additional consideration of percent of the total fee or $, whichever is greater, additional limits of liability may be made a part of this Agreement. In addition to the language cited above, it is suggested the following language be added to make sure the contract is not interpreted in such a way that the insurance or indemnity sections would conflict with, and therefore invalidate the LoL language: Limitations on liability or waivers in this Agreement are business understandings between the parties and shall apply to all legal theories of recovery, including breach of contract or warranty, breach of fiduciary duty, tort (including negligence), strict or statutory liability, or any other cause of action, regardless of any insurance requirements or indemnity provisions, provided that these limitations on liability or waivers will not apply to any losses or damages that may be found by a trier of fact to have been caused by the Design Professional s gross negligence or willful misconduct. The parties also agree that the Client will not seek damages in excess of the contractually agreed upon limitations of liability directly or indirectly through suits against other parties who may join the Design Professional as a third party defendant. Parties means the Client and the Design Professional, and their officers, directors, partners, employees, subcontractors and subconsultants. Of course, you should consult a lawyer in your jurisdiction for advice about the proper wording of such a clause to maximize your chances of getting the provision enforced. 9

10 Table 1.0 State by State Analysis of the Enforceability of Limitation of Liability Clauses State Enforceable Leading Case Statute Note AL AK AZ AR CA CO CT DE FL GA HI ID No * Questionable Robinson v. Sovran Acquisition Limited Partnership, 70 So. 3d 390 (Ala. 2011) City of Dillingham v. CH2M Hill N.W., Inc., 873 P.2d 1271 (Al. 1994) 1800 Ocotillo, LLC v. WLB Group, Inc., 219 Ariz. 200 (Az. banc 2008) W. William Graham, Inc. v. City of Cave City, 709 S.W.2d 94 (Ark. 1986) Markborough California, Inc. v. Superior Court, 227 Cal. App. 3d 705 (Cal. App. 1991), but compare Greenwood v. Murphy, 2008 WL (Cal. App. 2008) U.S. Fire Ins. Co. v. Sonitrol Management Corp., 192 P.3d 543 (Colo. App. 2008) Shawmut Bank Conn. v. Connecticut Limousine Serv., Inc., 670 A.2d 880 (Conn. App. 1995) J.A. Jones Constr. Co. v. City of Dover, 372 A.2d 540 (Del. Super. 1977) Witt v. La Gorce Country Club, Inc., 35 So.3d 1033 (Fla. Ct. App. 2010) 10 Ak. Stat Cal. Civil Code Conn. Gen Stat e(a) (2007) Lanier at McEver, L.P. v. Planners & Eng'rs Collaborative, Inc., 663 S.E.2d 240 (Ga. 2008), and Borg O.C.G.A Questionable Warner Ins. Finance Corp. v. Executive Park Ventures, 2(b) 198 Ga. App. 70, 71, 400 S.E.2d 340 (Ga. Ct. App. 1990) Leis Family Ltd. Partnership v. Silversword Engineering, 2012 WL (Hi. Ct. App. 2012), and City Express, Inc. v. Express Partners, 959 P.2d 836 (Hi. 1998) Idaho State University v. Mitchell, 552 P.2d 776 (Idaho 1976) Not generally enforced and disfavored. They are strictly construed. But only if found to have been negotiated and expressly agreed. Not for willful or wanton conduct. * Per statute, not enforceable in contracts with towns or schools. not in a case where Fla. Stat there is a professional involved. They are strictly construed.

11 State Enforceable Leading Case Statute Note IL IN IA KS Scott & Fetzer v. Montgomery Ward & Co., 493 N.E.2d 1022 (Ill. 1986) Orkin Exterminating Co. v. Walters, 466 N.E.2d 55 (Ind. Ct. App. 1984) Advance Elevator Co., Inc. v. Four State Supply Co., 572 N.W.2d 186 (Ia. Ct. App. 1997) Santana v. Olguin, 208 P.3d 328 (Kan. App. 2009), and Wood River Pipeline Co. v. Willbros Energy Servs. Co., 738 P.2d 866 (Kan. 1987) Iowa Code They are strictly construed. They are strictly construed. KY Cumberland Valley Contractors, Inc. v. Bell County Coal Corp., 238 S.W.3d 644 (Ky. 2007) LA ME MD MA MI MN Questionable Isadore v. Interface Sec. Systems, 58 So.3d 1071 (La. App. 2011) Lloyd v. Sugarloaf Mountain Corp., 833 A.2d 1 (Maine 2003) Adloo v. H.T. Brown Real Estate, Inc., 344 Md. 254 (Md. Ct. App. 1996) Zavras v. Capeway Rovers Motorcycle Club, Inc., 687 N.E.2d 1263 (Mass. Ct. App. 1997) Ohio Cas. Ins. Co. v. Oakland Plumbing Co., 2005 WL (Mi. Ct. App. 2005) Yang v. Voyagaire Houseboats, Inc., 701 N.W.2d 783 (Minn. 2005) MS Unlikely Turnbough v. Ladner, 754 So. 2d 467 (Miss. 1999) MO MT NE Unlikely Purcell Tire and Rubber Company, Inc. v. Executive Beechcraft, Inc., 59 S.W.3d 505 (Mo. 2001) State ex rel. Mountain States Tel. & Tel. Co. v. District Court In and For Silver Bow, 160 Mont. 443 (Mont. 1972) Ray Tucker & Sons, Inc. v. GTE Directories Sales Corp., 571 N.W.2d 64 (Neb. 1997) La. Civ. Code Ann. Art Miss. Code Ann Mont. Code Ann , Not for willful or wanton conduct. 11

12 State Enforceable Leading Case Statute Note NV NH NJ NM NY NC Questionable Questionable ND Questionable OH OK Obstetrics & Gynecologists v. Pepper, 693 P.2d 1259 (Nev. 1985) McGrath v. SNH Development, Inc., 969 A.2d 392 (N.H. 2009) Stelluti v. Casapenn Enterprises, LLC, 1 A3d. 678 (N.J. 2010), Marboro, Inc. v. Borough of Tinton Falls, 297 N.J. Super. 411 (1996) Fort Knox Self Storage, Inc. v. Western Technologies, Inc., 142 P.3d 1 (N.M. Ct. App. 2006) Sommer v. Federal Signal Corp., 583 N.Y.S.2d 957 (Ct. App. 1992), Long Island Lighting Co. v. Imo Delaval, Inc., 668 F. Supp. 237 (S.D.N.Y. 1987) Schenkel & Shultz, Inc. v. Hermon F. Fox & Associates, P.C., 144 S.E.2d 393 (N.C. 2008) Reed v. Univ. of N.D., 589 N.W.2d 880 (N.D. 1999), but compare Kondrad ex rel. McPhail v. Bismarck Park Dist., 655 N.W.2d 411 (N.D. 2003) Motorists Mut. Ins. Co. v. ADT Sec. Systems, 1995 WL (Oh. Ct. App. 1995) Elsken v. Network Multi Family Sec. Corp., 838 P.2d 1007 (Ok. 1992) OR Estey v. MacKenzie Eng'g Inc., 927 P.2d 86 (Or. 1996) PA RI SC SD Chepkevich v. Hidden Valley Resort, L.P., 2 A.3d 1174 (Pa. 2010), see also Valhal Corp. v. Sullivan Assocs., Inc., 44 F.3d 195 (3rd Cir. 1995) Star Shadow Prods., Inc. v. Super 8 Sync Sound Sys., 730 A.2d 1081 (R.I. 1999) Georgetown Steel Corp. v. Union Carbide Corp., 806 F. Supp. 74 (D.S.C. 1992) Rozeboom v. Northwestern Bell Telephone Co., 358 N.W.2d 241 (S.D. 1984) N.H. Rev. Stat. Ann. 339 A:1 N.C. Gen. Stat. 22B 1 Okla. Stat. tit ; tit Statute may prohibit contract clauses that extend indemnification to design professionals. They are strictly construed. 12

13 State Enforceable Leading Case Statute Note TN Questionable * Houghland v. Security Alarms & Services, Inc., 755 S.W.2d 769 (Tenn. 1988) T. C. A * not if public interest is involved. TX UT VT Questionable VA Questionable WA WV WI WY Questionable Mickens v. Longhorn DFW Moving, Inc., 264 S.W.3d 875 (Tex. App. 2008), CBI NA CON, Inc. v. UOP Inc., 961 S.W.2d 336 (Tex. App. 1997) Russ v. Woodside Homes, Inc., 905 P.2d 901 (Utah Ct. App. 1995) Colgan v. Agway, Inc., 553 A.2d 143 (Vt. 1988), Hamelin v. Simpson Paper Co., 702 A.2d 86 (Vt. 1978) Pettit v. Chesapeake & Potomac Tel. Co. of VA, 1992 WL (Va. Cir. Ct. 1992) Markel American Ins. Co. v. Dagmar's Marina, L.L.C., 161 P.3d 1029 (Wa. Ct. App. 2007) Arts' Flower Shop, Inc. v. Chesapeake & Potomac Telephone Co. of West Virginia, Inc., 413 S.E.2d 670 (W. Va. 1991) Atkins v. Swimwest Family Fitness Ctr., 691 N.W.2d 334 (Wis. 2005) Massengill v. S.M.A.R.T. Sports Med. Clinic, 996 P.2d 1132 (Wyo. 2000) V.T.C.A., Bus. & C A V.S.A Va. Code Ann Wis. Stat

14 Spring 2013 Legislative & Litigation Roundup 1. California. New Case Law Shields Architects from Personal Injury Claims 1 Architects practicing in California now have an affirmative defense which could completely bar a third party's bodily injury claim against them for injuries arising out of open and obvious construction deficiencies. The Court of Appeal of California, in the matter of Neiman v. Daly Company (2012) Cal. App. Lexis 1134, has extended the "completed and accepted doctrine" to include architects. Formerly used by contractors to shield against bodily injury claims brought by injured third parties, the Court has applied the doctrine to guard architects against similar claims. The plaintiff, Ellen Neiman, filed a personal injury action against architect Leo A. Daly Company ("Daly Company"), alleging negligence. Neiman fell on the stairs at a theatre on the campus of Santa Monica Community College on May 30, 2008 and sustained bodily injury. Neiman alleged the stairs at the main stage of the theatre were improperly marked and Daly Company was the architect responsible to inspect the work of the contractor to ensure compliance with the design drawings. The allegation levied against Daly Company claimed the company was negligent in not discovering the contractor had failed to follow the design drawing. Daly Company brought a motion for summary judgment of the complaint arguing that it could not be held liable to Neiman because the work at the main stage had been "completed and accepted" by the Santa Monica Community College District in June 2006 and that because the alleged defects were patent in nature, plaintiff's claims against Daly Company were barred as a matter of law. The trial court granted Daly s motion and Neiman appealed. The Court of Appeal held that the completed and accepted doctrine extends to architects such as Daly Company and affirmed the trial court's ruling. This holds true even if the work performed by the contractor was defective. The rationale behind the doctrine is that once the work is completed and the owner has accepted it, the duty then shifts to the owner to ensure the property is safe. The exception to this doctrine is if the defective condition is latent (e.g. hidden, concealed or not apparent upon reasonable inspection). Although the facts of the Neiman case related to construction administration services, the logic behind the doctrine should apply equally to factual scenarios where there was an actual error or omission in the design drawings. 2. Delaware. Economic Loss Doctrine Applied to Bar Recovery Against Civil Engineer and The Statute of Repose Applied to Civil Engineering Projects. 2 In Riverbend Community, a developer accused his civil engineer of failing to properly delineate the wetlands on the site and sued on two theories breach of contract and negligence (a tort theory). The trial court granted our summary judgment motion in holding that economic loss doctrine barred the negligence claim and the breach of contract claim was barred by a release. The economic loss doctrine simply says that, where there is no personal injury involved, then tort law has no interest in the matter and the claimant can only sue in contract. Therefore, architects and engineers can enforce a limitation of liability clause since the claimant cannot avert the contract by seeking a tort remedy. The economic loss doctrine was first established in Delaware law in 1992 in the case of Danforth v. Acorn, 608 A. 2d 1194 (Del. 1992). The Riverbend decision expands this rule to cover civil engineering 1 Thanks to Archer Norris partner William L. Coggshall, Ill, of Walnut Creek CA, for permission to re publish this summary. Mr. Coggshall represents architects and engineers in complex commercial litigation. 2 Thanks to attorney Paul Cottrell of Tighe & Cottrell of Wilmington DE for permission to re print this summary. Mr. Cottrell regularly represents architects and engineers. 14

15 design. (The official citation is 2012 WL for the trial court decision and 2012 WL for the affirming opinion by the Delaware Supreme Court.) The case of Davis v. Saville involved the time bar of the Statute of Repose. Under the Delaware Code, claims against design professionals are barred if they are filed more than 6 years after the date of substantial completion. But the statute only covers construction of an improvement to real property. The case involved the deaths of several motorists on Interstate 95 just north of the Marsh Road exit. A north bound car had swerved off the road, hit a dirt berm in the grass median and became airborne, finally crashing head on to a south bound car killing everyone in the two vehicles. Plaintiffs argued that the civil engineer who designed the berms was not protected by the Statute of Repose because (1) they had merely supplied AASHTO design standards and had not really designed the mounds, (2) the design had been an accommodation to the contractor who did not want to haul excess dirt off site, and (3) the berms did not add value to the project and therefore were not an improvement to real property. The Court rejected all three arguments and granted summary judgment to the engineer. This decision makes clear that the protection of the Statute of Repose extends to civil engineering works. 3. Connecticut. Statute of Limitations Does Not Apply to Construction Claims by the State. In November 2012, the Connecticut State Supreme Court reversed a Superior Court judge's decision that prevented the state from suing the contractors and designers who built the University of Connecticut law school library. The high court ordered the case back to trial court, where the state can pursue its claims against 28 defendants. The $23 million library, completed in 1996, had an unstable, leaking, granite façade, according to the university. The state sued the builders and designers in The state spent more than $15 million to repair what it termed "water intrusion." The state waited 12 years to sue over the defects, and Superior Court Judge William T. Cremins in 2009 ruled that the state was bound by a six year statute of limitations and dismissed the case. The state claimed it could sue whenever it wanted because it is immune to the statute of limitations and instead covered by the 13th Century English legal doctrine known as "nullum tempus occurrit regi," which means, literally, that "no time runs against the king." The high court agreed. "We agree with the state that the doctrine of nullum tempus is well established in the state's common law and that the doctrine exempts the state from" the statute of limitations, Justice Richard N. Palmer wrote in the court's unanimous decision. The state argued that the doctrine protects taxpayers. The Supreme Court's decision could have wide implications for design professionals and contractors in Connecticut who perform work for the state as it essentially eliminates any time limit on liability. 4. Michigan. Architect Not Liable to Unsuccessful Bidder for Tortious Interference 3 Defendant architectural firm was retained by a school district to evaluate bid applications and to make recommendation as to which contractor should be awarded a contract to construct a school building. The school district awarded the contract to the second lowest bidder based on the architect s recommendation even though the successful bid was approximately $50,000 more than the low bid. The unsuccessful low bidder sued the architectural firm for tortious interference with a business expectancy. The trial court granted summary judgment for the architect, but the intermediate appellate court reversed. The Michigan Supreme Court reversed, holding that 3 Thanks to Hinshaw Culbertson for permission to re print this summary. 15

16 a disappointed low bidder did not have a valid business expectation to be awarded a contract on a public construction project. The issue before the court was whether a valid business expectancy was created under a school district s policy that bids were to be awarded under the lowest responsible bidder rule? In Cedroni Associates, Inc. v. Tomblinson, Harburn Associates, Architects & Planners, Inc., No (Sup. Ct. Mich. July 27, 2012), the Michigan Supreme Court held that although the school district s financial management policy provided that the contract would be awarded to the lowest responsible bidder, the school district retained the right to choose the lowest responsible bidder. The policy provided a list of factors for the school district to consider, including the input of its architect, which gave the school district discretion to reject the lowest bidder. Under Michigan law, to establish a claim for tortious interference with the business expectancy the plaintiff must prove the existence of a valid business expectancy. Under the common law rule, low bidders on public contracts do not have standing to sue the public entity that rejects their bid, especially where a municipality has adopted a provision requiring it to accept the lowest responsible bidder." 5. California. Legislature Restricts Certain ADA Claims California has enacted legislation (SB 1186) to require (1) that pre litigation demand letters regarding constructionrelated issues may no longer contain a demand for money, and must be written so that a reasonable person can understand the basis of the alleged violation; (2) plaintiffs may no longer stack their claims based on multiple visits to the same business establishment, unless they can offer a reasonable explanation for multiple visits; (3) the $4,000 minimum statutory damage award for construction related access violations is reduced to either $1,000 or $2,000 for businesses who correct the violations, depending on the size of the business and the amount of time in which the violations are corrected; (4) Commercial property owners must state, on lease forms or rental agreements executed after July 1, 2013, whether the leased premises have been inspected by a certified access specialist. 6. South Carolina. Good Samaritan Legislation Affording A&E s Immunity Enacted. 4 On June 26, 2012, the Governor of South Carolina approved an act of the legislature known as the Architects and Engineers Volunteer Act. This legislation gives immunity from liability to an architect or engineer who provides voluntary emergency services at the scene of a declared national or state emergency. Specifically, the title to this Act provides specified immunity for a registered architect or engineer who provides certain voluntary architectural or engineering services at the scene of a declared state or national emergency at the request of the Governor and to provide exceptions to this immunity. There appears to be inconsistency in this legislation. For example, Sub section A provides that a licensed engineer who voluntarily works without compensation is not liable for personal injury, wrongful death, property damage, or other loss caused by the licensed engineer s acts, errors, or omissions, but Section B(1), provides that any licensed engineer who is appointed * * * must not be held liable for any civil damages unless the consequences of his act are the result of gross negligence or recklessness proven by a mere preponderance of the evidence. Section 3 (C) eliminates immunity from liability to persons providing services pursuant to Section Section gives the licensing board the authority to waive all licensing and credentialing requirements under state law for the period of a declared public emergency and establishes the conditions as may be appropriate to enable engineers properly licensed in other jurisdictions having like standards 4 Thanks to R. Davis Howser of Howser, Newman & Besley, Columbia, SC for permission to print this summary. Mr. Howser regularly represents design professionals in construction cases. 16

17 as those currently in effect in the State of South Carolina to render services in the geographic areas identified in the order declaring an emergency. If that engineer provides services for compensation he would fall under this section and would not have immunity for his acts, errors or omissions. This legislation is perhaps an admirable attempt at Good Samaritan legislation, but for the most part this act is not a model of clarity. This paper is for general informational purposes only. None of it constitutes legal advice, nor is it intended to create any attorney client relationship between you and the author. You should not act or rely on this information without seeking the advice of your own attorney. This material does not amend, or otherwise affect, the provisions or coverages of any insurance policy or bond issued by Travelers. It is not a representation that coverage does or does not exist for any particular claim or loss under any such policy or bond. Coverage depends on the facts and circumstances involved in the claim or loss, all applicable policy or bond provisions, and any applicable law. Availability of coverage referenced in this document can depend on underwriting qualifications and state regulations. Travelers Casualty and Surety Company of America and its property casualty affiliates. One Tower Square, Hartford, CT The Travelers Indemnity Company. All rights reserved. 17