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This subtle but onerous language is becoming fairly widespread in design contracts and, if overlooked, could leave design firms with significant, potentially uninsured exposures. Hidden risks in design contracts
W hen design and construction professionals negotiate contracts with clients, they know to flag potential issues involving standard of care and indemnification. Now, however, the uncertainty of maintaining firm revenues and viable project backlogs could prompt some professional firms to miss and sign on to less obvious contractual terms they ordinarily would sought to have deleted, or at least modified, under pre-COVID circumstances.
Here are four examples of subtle but onerous language that’s becoming fairly widespread in design contracts and, if overlooked or unaddressed, could leave design firms with significant and potentially uninsured exposures: 1)Agreeing to act in a fiduciary capacity. While most AEC firms won’t agree to contract clauses obliging them to act to the highest level of their profession, certain contractual language may have the same implications. Consider this wording taken from an architect-engineer sub-consultant agreement: “Consultant accepts the relationship of trust and confidence established between it and Architect….” This “disguised” standard of care language may be as problematic as agreeing to perform to the highest
standards. Why? This language includes “key” words creating a fiduciary relationship between the parties. A fiduciary owes the utmost level of care and must put its interests aside in all of its dealings as a fiduciary or trustee. This relationship is typically not present in the AEC context and is reserved to situations where the beneficiary is at a measurable disadvantage to the fiduciary (such as monies in a trust account set aside for the benefit of a minor). A fiduciary relationship is not evaluated in the context of “reasonable” performance and is therefore potentially subject to standard policy limitations tying professional liability coverage to a “reasonable” standard of care while excluding purely contractual assumptions of liability (such as a guarantee of
See ROB HUGHES, page 4
THE ZWEIG LETTER FEBRUARY 15, 2021, ISSUE 1379
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