CONSULTANTS: CASE SCENARIOS
LIMITATION OF LIABILITY A contractor made a claim against a city for $1 million in extra costs. The city settled with the contractor and looked to the engineer for contribution. The engineer contributed $500,000, but believed any exposure it had was related to services performed by the engineer’s geotechnical consultant. The engineer attempted to subrogate against the geotechnical consultant, but ran into problems because the contract between the engineer and geotechnical consultant contained a $25,000 limitation of liability clause. The engineer was only able to recover $25,000. VICARIOUS LIABILITY A large university retained an engineer to design a co-generation plant. The engineer’s only exposure was the vicarious exposure created by a structural engineering consultant that failed to adequately determine the structural loads for the design-build client. The consultant paid the entire $250,000 policy, leaving the engineer to pay the remainder of the $2.5 million claim. POOR DOCUMENTATION AND INSUFFICIENT CONSULTANT INSURANCE A client retained an architect to design a manufacturing plant, warehousing space, and administrative offices. Several years after the project was completed, the client filed an arbitration demand against the architect and contractor for construction defects. Although many of the allegations against the architect involved the structural components of the design, the structural engineer could not be forced into arbitration. In addition, although the structural engineer had been insured when retained by the architect, the engineer had since dropped professional liability insurance. The structural engineer could not afford to help the architect defend the structural allegations. Of the $2 million in alleged damages, $1.6 million related to a cracked concrete floor. The client had insisted on a maintenance-free, crack-proof floor. There was no documentation in the architect’s file informing the client that this was not feasible. The cost of the arbitration was prohibitive. The arbitrators would meet for two weeks and then recess for four months. After three sessions, although less than 50% complete, the architect had already spent $163,000 in expenses and estimated paying an additional $70,000 before the end of the hearings. Because the arbitrators seemed to have difficulty understanding the differences between the duty of care owed by a design professional as compared to the liability of a contractor, a decision was made to settle the claim for $350,000. The architect then had to negotiate with the uninsured structural engineer. After filing a lawsuit and spending another $44,000 in expenses, the architect finally reached a settlement with the engineer more than two years later. The engineer agreed to pay $25,000 plus ten annual payments of $10,000 for a total contribution of $125,000.
22 • From Risk to Profit - Benchmarking and Claims Studies
Victor
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