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O P I N I O N
Certification agreements
A lthough design professionals often are asked or required by clients to issue certifications, many simply sign certification agreements without reviewing them carefully. Unfortunately, this may leave them with large uninsured liability exposures. Careful review of certifications with your legal counsel and insurance advisor will enable you to better address the needs of your clients and lenders.
The most widely used certifications applicable to design professionals include: lender certifications, which “certify” a project can be built within the budget or construction loan amount; certification for contractor payments, which require careful review, but generally don’t pose significant risks for design professionals when they include appropriate caveats; and certificate of Substantial Completion, which may pose significant risks for design professionals, who in effect are certifying a project was constructed and completed according to their plans and specifications. A number of insurance companies and professional associations currently offer risk management guidelines for design professionals concerning certification. Victor O. Schinnerer, managing general agent for CNA and a leading underwriter of professional liability insurance for AEC firms, provides a list of questions for design firms to consider.
One of the key issues for AEC firms when a lender requires certification is whether the language in the agreement – or simply the provision of the certification – establishes a claim of detrimental reliance by a third party. For example, consider the following language from a standard certification
Rob Hughes
form required by a lending institution: “... Engineer is executing this Consent,
Agreement and Certificate to induce Lender to advance funds under the Loan Agreement; and Engineer understands that Lender would not do so but for Engineer’s execution and delivery for this Consent, Agreement and Certificate.” This should be a red flag; the legal concepts of “inducement” and “detrimental reliance” give the lender cause (where it otherwise didn’t exist) to sue the design professional. This implied
See ROB HUGHES, page 10
THE ZWEIG LETTER February 24, 2020, ISSUE 1333
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