Construction Law Conference Presentation

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ARCHITECT/ENGINEER DEFENSE IN PRACTICE

Matthew B. CanoWill W. Allensworth

Allensworth & Porter, LLP100 Congress Avenue, Suite 700

Austin, TX 78701

CONSTRUCTION LAW FOUNDATION OF TEXAS

28th Annual Construction Law Conference

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Unique Defensive Issues for Design Professional Litigation

CERTIFICATE OF MERIT

• Must be filed by “the plaintiff” initiating an action

• Not required to be filed by Third-Party Plaintiff or Cross-Claimant

• Not be required to be filed by Counter-Claimant• ENGlobal U.S., Inc. v. Jefferson Refinery, L.L.C.

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CONS• Owner sues . . .

– Design/Builder or General Contractor sues…

• Engineering sub-consultant

• No protection for engineer from Chapter 150

• Frustrates “manifest object of Chapter 150” being “prima facie showing of liability at the time” engineer is sued


JASTER V. COMET II., INC.

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PROS• Owner sues…

– Architect sues…

• Engineering sub-consultant

• Architect does not need COM

• Architect does not need prove Plaintiff’s case



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PROS (CONT.)

• Negligence based claim against design professional still requires expert testimony regarding the standard of care and breach– Prellwitz v Cromwell, Truempler, Levy, Parker and

Woodsmale, Inc., 802 S.W.2d 316 (Tex. App. – Dallas 1990).



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DEALING WITH DESIGN PROFESSIONALS

• Smaller shops can take claim very personally

• Strategy of filing against DP individually

– Sensitive

– Can backfire and poison a case


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• Design firms are not heavily capitalized

• Cannot ordinarily satisfy significant judgments


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Where insurance will satisfy claim:

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EFFECT OF ULTIMATE FACT FINDING OF LIABILITY

• Judgment can have wide ranging implications

• Even a “win” can be a loss from standpoint of client

• Potential effect on future work



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ULTIMATE FACT FINDING OF LIABILITY

Design professionals often respond to broad disclosure requests


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RFQ DISCLOSURE

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• Claim can relate to ongoing project – even one in early stages

• DP may have interest in ongoing relationship with claimant

• Claimants use this to their advantage

• May have payment claim by DP and claim for breach of contract by owner all wrapped up in one


CONTINUING RELATIONSHIPS CAN AFFECT CASE


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ECONOMIC LOSS RULE

LAN/STV v. Martin K. Eby Const. Co., Inc.

– “[W]hether the [economic loss rule] permits a general contractor to recover the increased costs of performing its construction contract with the owner in a tort action against the project architect for negligent misrepresentations—errors—in the plans and specifications.”


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ECONOMIC LOSS RULE

• DART hires contractor (Eby)

• DART hires architect (LAN/STV)

• Eby allegedly suffers $14M in damages

• Alleges that plans are full of errors

• Eby sues LAN/STV for negligent misrepresentation

• Trial Court renders judgment of $2.25M for Eby against LAN/STV


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ECONOMIC LOSS RULE

• Supreme Court rejects Restatement’s application of negligent misrepresentation

• “We think . . . that a contractor will assume it must look to its agreement with the owner for damages if the project is not as represented or for any other breach.”


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ECONOMIC LOSS RULEWHEN DESIGN DAMAGES OTHER PROPERTY

• Espey Huston & Assocs., Inc.

– Engineer designed drainage system

– Drainage issues allegedly caused cracked walls, doors not fitting, mildew, etc.


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ESPEY (CONT.)

“to the extent that the alleged inadequacies [in the drainage design] caused the damage to parts of the property beyond [the engineer’s] contract,” plaintiff can sue in tort


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PUGH V. GENERAL TERRAZZO

SUPPLIES, INC.

• Pughs hire Westbrook (GC)

• Westbrook hires RBS (EIFS installer)

• General Terrazzo is EIFS supplier (and maybe supervised some installation)

• No privity between Pughs and General Terrazzo

• Pughs sue General Terrazzo for negligence


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PUGH DAMAGES

• Due to EIFS installation:

– Lack of drainage and venting;

– Moisture penetrated EIFS system;

– Decayed wood framing, water damage, and mold;

– Warping in hardwood flooring


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PUGH (CONT.)

• Court holds ELR bars negligence claims

• “[A]lthough the Pughs were not in privity with General Terrazzo, their economic losses were the subject matter of their contract with Westbrook [GC]”

• Court treated “damages to [the Pughs’ entire] home” as though it were products liability case


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ESPEYPROJECT DAMAGES

PUGHPROJECT DAMAGES

NEGLIGENCE NO NEGLIGENCE

DEFENDANT’S

SCOPE

NO NEGLIGENCE

DEFENDANT’S

SCOPE

NO NEGLIGENCE

Architects’ and Engineers’ professional liability insurance

PROFESSIONAL LIABILITY POLICIESWhat do they cover?

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PROFESSIONAL LIABILITY POLICIES

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TYPICAL EXCLUSIONS

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TYPICAL EXCLUSIONS

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REDUCING LIMITS

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REDUCING LIMITS

• Expenses reduce coverage

• Stowers issues

• Discovery issues


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REDUCING LIMITS


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STOWERS IN PRACTICE

• Effective Stowers demand:

– Must be reasonable

– Must be within policy limits

• Because policy erodes, “policy limits” decreases with defense expenses


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EFFECTIVE STOWERS DEMAND

• Demand settlement in the amount of remaining policy limits

• Minus amount needed to complete settlement documents

• But won’t plaintiff need to know what remains on policy?


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DISCOVERY ISSUES - IN RE DANA CORP.

• Court concluded that TRCP 192.3(f) neither prohibited nor required discovery of more than existence of insurance agreement and its contents

• May not be able to discover amount of limits expended on defense


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SELECTION OF COUNSEL

• Some carriers allow selection

• Most have panel counsel

• May depend upon deductible and RORissues


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DEDUCTIBLES

• Generally spent first -

unless have Dollar One Defense

• May have Mediation Credit

• May have other credit if no litigation or settle within X time of claim being made


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CLAIMS-MADE POLICIES


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CHECK THE RETROACTIVE DATE!


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STRATEGY IMPLICATIONS –DROPPING NEGLIGENCE

• Breach of Contract allegation covered if pled as breach based upon failure to perform in accordance with the professional standard of care


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JURY CHARGE FOR BREACH OF K

• “Did Don Davis fail to comply with the agreement?”


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JURY CHARGE K DAMAGES

• “What sum of money, if any, if paid now in cash, would fairly and reasonably compensate Paul Payne for his damages, if any, that resulted from such failure to comply?


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COMPARATIVE FAULT IN CONTRACT?

• No, per Hunt v. Ellisor & Tanner, Inc.

• Architect tried to have comparative responsibility of general contractor submitted to jury on breach of contract claim by owner against architect

• Court of Appeals said no comparative fault for breach


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COMPARATIVE FAULT IN CONTRACT?

• Should still have valid argument about what damages, if any, “resulted from”, the breach of contract by design professional.


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CONSENT OF INSURED

• Must not only convince carrier but also must convince design professional or firm

• Design professional may have other motives


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CONSENT OF THE INSURED --EFFECT


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EFFECT OF SETTLEMENT ON PREMIUMS

• Settlements may affect premiums, but so does the cost of claim

• Large settlements affect insurability

• May have some difficulty if firm has several claims

Date post:	15-Jul-2015
Category:	Law
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