PROJECT: CASE SCENARIOS
ARCHITECT’S NEGLIGENCE An architect provided design services for an upscale, high-rise condominium project. The firm’s contract was for design and shop drawing review, but no construction site visits. Soon after the building was occupied, water intrusion (one of the most common claims on condo projects) was discovered, primarily through windows and balcony doors. Experts were hired by the homeowners association, and the estimated cost to repair the numerous construction and design defects was $30 - $45 million. Allegations against the architect involved approval of EIFS, balcony slope issues, and negligent approval of shop drawings. The architect’s exposure was significant in view of the size of the claim and the low policy limits of several co-defendants. The architect settled for $1.7 million in addition to paying $450,000 in expenses. ENGINEER’S UNDER-DESIGN A structural engineer retained by a design-build contractor rushed to complete the preliminary design on a state-owned bridge project. The contract was awarded, but it was noted that the engineer had under-designed the steel by 75%. Unfortunately, the bid and award were based on the preliminary design. The contractor was unable to pass onto the state the cost of the additional steel and labor. Although the contractor recognized that the error was the result of the rush—from the start of preliminary design to notice to proceed was less than three months—this was a clear case of engineer liability with damages exceeding the engineer’s $2 million policy. BETTERMENT School projects generate a high number of claims in terms of frequency (reported claims) and severity (dollars spent). Mold and mildew developed in a North Carolina school. The allegation against the engineer was that the HVAC system was insufficient to handle local humidity levels. The engineer designed a fix that would have cost $300,000, but the school’s “emergency fix” cost $1.5 million. Despite arguments of betterment and failure to mitigate damages, the arbitrator’s award against the engineer was $750,000. DOCUMENTATION ERROR Hospital and healthcare projects also generate a large number of claims. The biggest problem areas often relate to the design of the HVAC system. In a 186-unit senior living center in the Southwest, there was inadequate power to the HVAC units in patient rooms. During design, the design professional provided incorrect data for the HVAC power requirements, which was the basis for the electrical design of the HVAC system. The design professional paid $450,000 to settle this claim.
17 • From Risk to Profit - Benchmarking and Claims Studies
Victor
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