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Erik M. Rosenwood Hamilton Moon Stephens Steele & Martin, PLLC and Jeff Todd Insurance Management Consultants, Inc. CLAIMS STUDY. LARGE ARCHITECTURAL CLAIM. An architect was retained to provide architectural and engineering services for a sports facility in a northern state.

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claims study

Erik M. Rosenwood

Hamilton Moon Stephens Steele & Martin, PLLC

and

Jeff Todd

Insurance Management Consultants, Inc.

CLAIMS STUDY

slide2

LARGE ARCHITECTURAL CLAIM

  • An architect was retained to provide architectural and
  • engineering services for a sports facility in a northern state.
  • The prime architect then retained a local architect and structural
  • engineer. The design team provided a performance
  • specification for a standing seam metal roof.

WWW.DESIGNPROFESSIONAL.ORG

slide3

LARGE ARCHITECTURAL CLAIM

  • Questions to Consider:
  • Owners Needs (financing, tax issues, timing, interest payments)
  • Direct vs. Consequential Damages
  • Limitation of Liability
  • Fees
  • Amount of Insurance
  • Indemnification from other parties
  • Clearly defined scope

WWW.DESIGNPROFESSIONAL.ORG

slide4

LARGE ARCHITECTURAL CLAIM

  • About three years after substantial completion, a section of the dome blew off during a windstorm. The roof was
  • repaired for $250,000. The sports dome’s property insurer paid for the repairs and two years later filed suit against
  • the prime architect. The city filed their own lawsuit, claiming $5,000 in damages, which was the amount of their
  • deductible, and other unspecified damages. Both suits alleged negligence, breach of contract, and breach of
  • warranty. A reservation of rights was issued on the breach of warranty claim since professional liability insurance
  • does not provide coverage for express warranties and guarantees.

WWW.DESIGNPROFESSIONAL.ORG

slide5

LARGE ARCHITECTURAL CLAIM

  • Questions to Consider:
  • Possible problems on project?
  • Early settlement or litigate?
  • Client management
  • Publicity
  • Effect on other projects/relationship with other parties to suit

WWW.DESIGNPROFESSIONAL.ORG

slide6

LARGE ARCHITECTURAL CLAIM

  • Shortly after the claims were filed and while warranty work was being performed on the dome, it was determined
  • that there were structural problems with the standing seam roof. In addition, the city identified problems with the
  • parapet walls, the placement of the vapor barrier below the roof, and the attachment of the standing seam metal
  • roof. The city also raised concerns about snow accumulation and resulting avalanches.

WWW.DESIGNPROFESSIONAL.ORG

slide7

LARGE ARCHITECTURAL CLAIM

  • The design team pointed to the roof manufacturer as having primary responsibility for the problems arising out of
  • the standing seam metal roof, including the wind damage, failure of the bolts attaching the roof to the structural
  • deck, and failure of the bottom supporting purlins of the roof.
  • The design team also argued that the structural overload that occurred on the southeast corner of the dome
  • resulted from unusual and unanticipated weather conditions instead of design error. The roof was overloaded by a
  • 500-year snow event that would not have been considered in design.

WWW.DESIGNPROFESSIONAL.ORG

slide8

LARGE ARCHITECTURAL CLAIM

  • Going Back to our Questions to Consider:
  • Limitation of Liability
  • Early settlement or litigate?
  • Indemnification from other parties
  • Clearly defined scope – What was minimum design criteria? 50 year storm event? 100 year? 500 year? Hurricanes Hugo or Katrina?

WWW.DESIGNPROFESSIONAL.ORG

slide9

LARGE ARCHITECTURAL CLAIM

  • The city subsequently increased the amount of their lawsuit to $8 million. Damages included $1 million to deal with the snow load issues. The contractors and the roof manufacturer were added as codefendants.

WWW.DESIGNPROFESSIONAL.ORG

slide10

LARGE ARCHITECTURAL CLAIM

  • Although there were many defenses that would be raised during negotiation, the design team still faced exposure
  • for the claims relating to the vapor barrier and parapet walls, faulty on-site observation of the flashing and roof detail, avalanching snow and snow management issues, and failure to detect contractor errors in the attachment of
  • the roof. The design team was involved in all phases of the project, including design, shop drawing review, and
  • construction observation. The contractors and the roof manufacturer faced substantial liability for the condition of
  • the roof and improper installation.

WWW.DESIGNPROFESSIONAL.ORG

slide11

LARGE ARCHITECTURAL CLAIM

  • The city decided wanted a complete replacement of the roof structure and installation of snow fences, ground level roofs, and landscaping to address avalanching. Cost: $5 million. In addition, the city had out-of-pocket expenses of $1.7 million, bringing their total claim to $6.7 million. The defendants attempted to convince the city that a realistic recovery was $2.5 million. The city demanded $5 million. Defendants countered with $1.7 million, which included $1 million from the design team. The city indicated that the public would never accept a settlement for less than the cost of the planned repairs. The city said that they would rather accept a judge’s decision for substantially less than agree to compromise its claims for less than $5 million.

WWW.DESIGNPROFESSIONAL.ORG

slide12

LARGE ARCHITECTURAL CLAIM

  • Going back to our Questions to Consider:
  • Owners Needs – consider your owner’s motivations
  • Public Entities
  • CASE IN POINT – THE IDIOT SON-IN-LAW

WWW.DESIGNPROFESSIONAL.ORG

slide13

LARGE ARCHITECTURAL CLAIM

  • The design team became the target of the city’s claims. The city contended that the entire roof needed to be
  • removed because the original design failed to include a protective waterproof underlayment beneath the standing
  • seam roof. The city also alleged that the design team:
  • ● improperly placed the vapor barrier beneath the roof;
  • ● failed to specify the use of a waterproof gypsum board beneath the roof; and
  • ● failed to properly accommodate in the design the collection of snow and snow avalanching resulting from the
  • configuration of the roof.

WWW.DESIGNPROFESSIONAL.ORG

slide14

LARGE ARCHITECTURAL CLAIM

  • The city also argued that the contractors failed to:
  • ● supply a custom-designed roof as required by the plans and specifications;
  • ● properly place steel purlins and attachments as required to secure the roof to the metal structure;
  • ● provide sufficient structural capacity to accommodate snow loads; and
  • ● properly install flashing at the top and bottom portions of the standing seam metal roof.
  • The city also argued that the design team was jointly liable for its failure to identify or prevent these defects.

WWW.DESIGNPROFESSIONAL.ORG

slide15

LARGE ARCHITECTURAL CLAIM

  • The attorney for the design team estimated that the costs to the design team to prepare this case for trial would
  • be approximately $500,000. The design team decided to attempt a separate settlement with the city.
  • The city’s demand of the design team was $4 million in
  • damages. The design team countered with an offer of $1.8 million. The city eventually came back with a demand of
  • $3,350,000, The design team finally
  • settled the city’s claim for $2.4 million. Legal fees, expert expenses, and the policyholder’s deductible added
  • $1,270,000 to the cost, bringing the total cost for this claim to $3,670,000.

WWW.DESIGNPROFESSIONAL.ORG

slide16

READY TO TRY AGAIN?

WWW.DESIGNPROFESSIONAL.ORG

slide17

LARGE ENGINEERING CLAIM

  • An architect retained a mid-size structural engineering firm to provide the structural design for an assisted
  • living facility. After the engineer started the lateral design, the client made several design changes, which
  • included an increase in the height of the facility (it went from a six floor to a seven-floor facility). In addition,
  • the mechanical penthouse was changed from a metal floor to a cement floor.

WWW.DESIGNPROFESSIONAL.ORG

slide18

LARGE ENGINEERING CLAIM

  • Questions to Consider:
  • Owners Needs (financing, tax issues, timing, interest payments)
  • Changes During Project – What impact to structure?
  • Direct vs. Consequential Damages To Schedule? To coordination of trades? To Scope?
  • Change in team/personnel?
  • Changes comply with permit? With code?
  • Communication? (E.g., “Square footage” and “Youth Area”
  • DOCUMENTATION?

WWW.DESIGNPROFESSIONAL.ORG

slide19

LARGE ENGINEERING CLAIM

  • The contractor also suggested reducing construction costs by tiering one side of the building to create a stair-step
  • effect. The engineer noted that this revision had a significant effect on the lateral design of the building and the
  • distribution of the lateral loads in the north-south direction. Loads on several of the frames changed and required
  • redesign. The addition of a seventh floor changed the requirements on the steel framing, brace frames, and
  • foundations. The resulting redesign was performed on a fast-track basis.

WWW.DESIGNPROFESSIONAL.ORG

slide20

LARGE ENGINEERING CLAIM

  • The client also decided that he did not want to use mechanical units through the wall and requested a different
  • mechanical system. Because of this change, it was no longer possible to pass the mechanical system underneath the
  • steel framing—the system would have have to pass through the steel framing. The engineer was redesigning to
  • accommodate this request when the contractor informed the engineer that the redesign was delaying the project.

WWW.DESIGNPROFESSIONAL.ORG

slide21

LARGE ENGINEERING CLAIM

  • Back to our Questions to Consider:
  • Changes During Project – effect on schedule
  • Changes comply with permit? With code?
  • Communication?
  • DOCUMENTATION?

WWW.DESIGNPROFESSIONAL.ORG

slide22

LARGE ENGINEERING CLAIM

  • During the pouring of the second-floor slab, a portion of the metal deck adjacent to one of the stairs collapsed.
  • The engineer noticed that the metal deck had not been laid in conformance with the requirements of the contract
  • documents. In addition, the thickness of each slab varied from what the documents specified. At this time, the
  • contractor was fired, and the construction manager took over.

WWW.DESIGNPROFESSIONAL.ORG

slide23

LARGE ENGINEERING CLAIM

  • Back to our Questions to Consider:
  • Change in team/personnel?
  • Communication? DOCUMENTATION?

WWW.DESIGNPROFESSIONAL.ORG

slide24

LARGE ENGINEERING CLAIM

  • A project review was conducted, and it was noted that there were problems with the lateral load calculations.
  • Further bracing was required to accommodate any further construction. Although the engineer had revised the
  • framing to accommodate the design changes, he had not changed the load calculations. The construction manager
  • stopped the steel order and requested a review from another structural engineering firm.
  • Unfortunately, the client was funding this project from an $8 million profit earned from the sale of another
  • building. Due to tax law, he had only a limited amount of time with which to reinvest that profit, or he would have to
  • pay taxes on it.

WWW.DESIGNPROFESSIONAL.ORG

slide25

LARGE ENGINEERING CLAIM

  • Back to our Questions to Consider:
  • Owners Needs (financing, tax issues, timing, interest payments)
  • Direct vs. Consequential Damages
  • Limitation of Liability
  • Amount of Insurance

WWW.DESIGNPROFESSIONAL.ORG

slide26

LARGE ENGINEERING CLAIM

  • The engineer was concerned about a large claim developing as a result of the alleged delays to the project.
  • Although there were several possible defenses, it was clear that the engineer had exposure for failing to review and
  • correct the framing calculations after redesign. The engineer also failed to raise concerns about the allotted time for
  • the redesign.
  • The engineer retained an attorney, and letters were sent to the architect regarding unnecessary delays created by
  • the client, original contractor, and construction manager.

WWW.DESIGNPROFESSIONAL.ORG

slide27

LARGE ENGINEERING CLAIM

  • In the opinion of the structural engineer, recommended repairs were over-engineered
  • and would cost more than $2 million. The fees for the client’s expert exceeded $85,000, which the client wanted
  • the engineer to pay; this demand was rejected. The engineer’s expert suggested using lightweight concrete to reduce
  • the load. While the product was more expensive, the increase was only approximately $150,000. This
  • recommendation was followed, and the final floors were successfully poured.

WWW.DESIGNPROFESSIONAL.ORG

slide28

LARGE ENGINEERING CLAIM

  • Back to our Questions to Consider:
  • Early settlement or litigate?
  • Client management
  • Effect on other projects/relationship with other parties to suit
  • Have enough insurance?

WWW.DESIGNPROFESSIONAL.ORG

slide29

LARGE ENGINEERING CLAIM

  • The client then demanded that both the architect and structural engineer pay their full policy limits and waive all
  • fees for the project. The architect had a $2 million policy limit, and the structural engineer carried a $500,000
  • limit. In addition, the architect began billing the structural engineer for time spent assisting with the proposed
  • repairs. The architect also withheld roughly $100,000 from the engineer for other joint projects.

WWW.DESIGNPROFESSIONAL.ORG

slide30

LARGE ENGINEERING CLAIM

  • At mediation, the construction manager presented an $800,000 claim for direct material and labor costs, plus
  • another $1.2 million for the 4.5 month delay. The client’s claim included loss of use of the facility for 4.5 months, a
  • $1.7 million tax loss, and a claim that there was additional vibration since the floor was constructed of lightweight
  • concrete. Total claims from all the parties exceeded $6.75 million. Actual damages were estimated to be closer to
  • $2.4 million.

WWW.DESIGNPROFESSIONAL.ORG

slide31

LARGE ENGINEERING CLAIM

  • The engineer requested settlement for the remainder of the policy limit, but due to the structural engineer’s
  • indemnity agreement with the architect, settlement was not possible unless the architect settled, as well. Expenses
  • reduced the engineer’s policy to approximately $450,000. In addition, the architect’s carrier was unwilling to offer
  • more than $300,000, despite a request from the architect to pay what remained of his policy limits (about $1.9
  • million). Eventually, the architect settled for an undisclosed amount. The remaining policy limit was paid on behalf of
  • the structural engineer and, as part of the settlement, both the architect and the structural engineer agreed to waive
  • their fees for the project.

WWW.DESIGNPROFESSIONAL.ORG

slide32

GENERAL RULES TO PROTECT YOURSELF

  • Try to Anticipate Problems
  • Clearly define your scope
  • Have the Right Insurance Coverage
  • Know how a claim will by handled by
  • your carrier

WWW.DESIGNPROFESSIONAL.ORG

slide33

GENERAL RULES TO PROTECT YOURSELF

  • Document Your Good Work
  • Watch What You Say in E-Mails / Have
  • a Document Retention Policy that will
  • Protect You
  • CALL YOUR BROKER OR YOUR
  • ATTORNEY AT THE FIRST SIGN OF
  • PROBLEMS!!!

WWW.DESIGNPROFESSIONAL.ORG

questions
QUESTIONS?

Erik M. Rosenwood

Hamilton Moon Stephens Steele & Martin, PLLC

and

Jeff Todd

Insurance Management Consultants, Inc.

WWW.DESIGNPROFESSIONAL.ORG