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In a case decided last year by the Court of Appeals of Texas (Black + Vernooy Architects v. Smith), it was held that an Architect could be liable to a young woman who fell 20 feet and sustained permanent injuries when she fell from a balcony due to defective construction work that the Architect failed to report to its client – the homeowner – during its construction administration services.  That decision appeared to find that the third party had rights as a third party beneficiary of the Architect/Owner agreement and also had rights under the common law as a foreseeable person that could be injured from defective work.   That holding was such an extraordinary deviation from normal case law, that the court was persuaded to reconsider its decision.

On reconsideration, the court reached the opposite conclusions from the previous holding – finding that the AIA B141 (1997) contract between the Architect and Owner only created contractual obligations of the architect to the owner, and it expressly precluded any third party beneficiary rights.  As to the alleged common law duty, the court held there was no such duty because even if the plaintiff was a foreseeable user of the balcony that likely would be injured from defective work, the architect owed her no independent duty of care under the circumstances – particularly because the Architect did not perform the defective construction and its contract did not give it control over the contractor who did the work.   The court found the Architect did not notice the defects and it therefore did not violate its contract which only required it to report to the Owner “known deviations.”

The court quoted extensively from the AIA contract and explained that, based on the contract language, it was clear that Architects were not guarantors or insurers of the contractor’s work, but that the plaintiff’s theory of the case would be to render Architects guarantors.  Nailing this argument, the court concluded,

“The duty sought by the [plaintiff] would expose the Architects to lawsuits brought by parties that the Architects could not have identified at the time of entering into the contract.  To protect against liability, the Architects would have needed to effectively take on the duty of care of a guarantor so as to ensure that all critical matters were fully observed.”

The court further observed that:

 “Holding the Architects liable would also have the consequence of curtailing the freedom of homeowners and architects to establish by contract the nature and scope of an architect’s services.”

“If the homeowner had desired for the Architects to be guarantors they could have contracted for such services, says the court, “and would likely have to pay a higher fee….”  The court further explained:

“Under this type of agreement, the owner obtains an architect’s assistance without having to pay for a full guarantee, and the architect provides assistance without having to incur the type of liability involved with providing a guarantee.  Imposing the type of duty suggested by the [plaintiff] onto architects under the type of industry-standard agreement at issue in this case would reduce the likelihood that architects would agree to enter into such agreements in the future or, at the very least, increase the compensation required for the architect’s services, despite the significant social utility of such agreements.”

For these reasons the court withdrew its 2010 decision and issued Black + Vernooy Architects v. Smith, 346 S.W. 3d 877, (TX 2011), reversed the judgment of the district court, and rendered judgment in favor of the architects.

There was never any question concerning the architects’ design.  The problem was not the design but rather the fact that the contractor’s balcony subcontractor failed to follow the very clearly delineated design details for the balcony of the vacation house.  The design drawings required that the metal pipes supporting the balcony be welded to steel plate tabs, which would then be bolted to the balcony. As constructed, however, the metal support pipes were attached to the balcony using thin metal clips.

The design drawings also required that a metal support piece, referred to as a “joist hanger,” be used to reinforce the attachment of each of the balcony joists to the exterior wall of the house. In the actual construction of the balcony, however, no joist hangers were used. Although required by the design drawings, the balcony handrail was not bolted to the house.

Finally, the design drawings called for the balcony to be attached to the exterior wall of the house by bolting it to a one-and-one-half-inch-thick rim joist and another one-and-one-half inches of wood blocking.  Contrary to the plans and specifications, the contractor did not attach the balcony to the house with bolts, a rim joist, and blocking, but was instead nailed to a one-half-inch piece of plywood.

A year after the vacation house was completed, two young women stepped onto the balcony and a few seconds later the balcony separated from the exterior wall of the house and collapsed, causing the two women to fall approximately 20 feet to the ground, where one was rendered a paraplegic as a result.  They sued the homeowner and general contractor, along with the architects.  The owner and contractor agreed to a settlement of $1.4 million, but the architects did not settle.

The case against the Architects went to a jury trial that determined the architects to be 10% responsible for the injuries on the basis of negligent performance of its contractual duty to perform construction administration services.  In reviewing the mater on appeal, the appellate court stated, “We have only been asked to decide whether the contractual duty that the Architects owed to the homeowners also extended to the [plaintiffs].”

In reviewing whether the architects had any contractual liability, the court focused squarely on contract language which called for “periodic site visits” for the purpose of reporting “known deviations from the Contract Documents.”  The court noted the significance of the fact that the language did not call for continuous site visits.  The 1997 version of the AIA B141 stated that the Architect was to perform its services “to endeavor to guard … against defects and deficiencies” and to determine “generally” whether construction of the home was being done in accordance with the plans and specifications.

In the 2010 decision of the appeal, the court suggested that this “endeavor to guard” language created a greater duty on the part of the architects.  This time around, however, the court found that language did not change the limited purpose of the architects’ services as otherwise stated in the contract, or increase the scope of the services to extend to the benefit of anyone other than the owner.  In this regard, the court quoted language from the agreement stating that “[n]othing contained in this Agreement shall create a contractual relationship with or a cause of action in favor of any third party….”

The court further noted that an individual can only be a third party beneficiary if the parties to the contract intend that to be so and entered into the contract for that third party’s behalf.  In this case, the contract reveals that no third party beneficiary status was intended to be granted to anyone.  For these reasons, the court concluded that when they entered into the contract the Architects assumed no contractual duty to third-parties to the agreement.

With regard to any potential common law duty allegedly owed by the architects to the plaintiffs, the court noted that in the absence of contractual authority to control the contractor and the absence of actual control of the contractor in the field, the architects could have no responsibility for the contractor’s defective workmanship.  The court characterized the plaintiff’s argument as follows:  “[Plaintiffs] urge that the Architects’ owed a legal duty extending to them as house guests because they were ‘foreseeable users.’ In addition, the Smiths assert that due to the dangers resulting from faulty construction and due to the public’s reliance on architects, ‘public policy’ demands that contractual privity not be an indispensable requirement for a duty of care to houseguests, or other for[e]seeable users of the balcony.”  The court acknowledged that the plaintiffs might be foreseeable users of the balcony, but nevertheless concluded:

 “[F]oreseeability and likelihood of injury are not the only factors to consider when deciding whether a duty exists. Rather, the risk, foreseeability, and likelihood of injury are to be weighed against the social utility of the actor’s conduct, the magnitude of the burden of guarding against the injury, and the consequences of placing that burden on the “actor.”  The “right to control” consideration weighs against extending an architect’s duty to third parties in this case.

 Specifically, the agreement provided that the Architects “shall neither have control over or charge of, nor be responsible for, the construction means, methods, techniques, sequences or procedures, or for safety precautions and programs in connection with the Work.” Instead, the agreement explained that those obligations “are solely the Contractor’s [ ] rights and responsibilities.” Further, the agreement specified that the Architects were responsible for their own acts or omissions but that they “shall not have control over or charge of and shall not be responsible for acts or omissions of the Contractor, Subcontractors, or their agents or employees, or of any other persons or entities performing portions of the Work.”

Similarly, the agreement stated that the Architects were not “responsible for the Contractor’s failure to perform the Work in accordance with the requirements of the Contract Documents.” In addition, the agreement explained that neither the authority bestowed on the Architects by the agreement “nor a decision made in good faith either to exercise or not to exercise such authority shall give rise to a duty or responsibility of the Architect[s] to the Contractor, Subcontractors, … their agents or employees or other persons or entities performing portions of the Work.”

 Having favorably determined that the Architects’ agreement with the owner did not create duties of control over the contractor, the court next considered in great detail the construction contract (also an AIA form) and concluded as follows:

In contrast to the agreement between the Architects and the Owner, the construction contract between the Owner and the contractor gave the contractor the absolute right to control the worksite and the means of construction and also imposed on the contractor significant supervisory responsibilities and liability.  As further explained by the court,

 “Specifically, the agreement stated that Nash “shall not be relieved of obligations to perform the Work in accordance with the Contract Documents either by activities or duties of the Architect[s] … or by tests, inspections or approvals required or performed by persons other than the Contractor.” Moreover, the agreement also explained that Nash “shall supervise and direct the work[;] …. shall be solely responsible for and have control over construction means, methods, techniques, sequences and procedures and for coordinating all portions of the Work[;] …. shall be responsible to the [Owner] for acts and omissions of [Contractor’s] employees [and] Subcontractors[;]” and “shall be responsible for inspection of portions of Work already performed to determine that such portions are in proper condition.” In addition, the agreement provided that [Contractor] “warrants to the [Owner] and [the] Architect[s] … that the Work will be free from defects not inherent in the quality required or permitted, and that the Work will conform to the requirements of the Contract Documents.” Finally, the agreement explained that the “Contractor shall indemnify and hold harmless the [Owner and the] Architect[s] … from and against claims, damages, losses and expenses … to the extent” that the claims, damages, or losses were “caused by the negligent acts or omissions of [Contractor or] a Subcontractor.”

  The next step in this analysis was the court’s conclusion that nothing in the record established that the Architects exercised actual control over the construction of the balcony.

One final plaintiff’s argument of note was that by signing certain payment certifications the architects had expanded and exceeded the contractual scope of service.  According to the court, “As proof that the Architects exceeded the scope of the agreement, the Smiths point to the language in some of the certificates that stated that the Architects had ‘inspected’ the construction.”  In rejecting this argument, the court stated that even if the “inspection” language in the certification forms that had been prepared by the contractor did indeed increase the scope, it would have been solely for the benefit of the owner and not any third parties.

For all these reasons, the court reversed the trial court decision and ruled that the architect was not liable.

Comment:  This decision, especially in conjunction with the earlier withdrawn decision by the same court in December 2010, is fascinating.   There is enough contract and legal analysis contained in these decisions to provide sufficient material for a full day seminar on the standard of care, what duties are owed by design professionals and to whom, and finally contractual risk management.

It is particularly significant that this decision corrects a previous decision that many attorneys and risk managers felt had expanded the duties of design professionals in a manner that made them responsible for finding and reporting to its client all errors in a contractor’s work, and essentially guaranteeing that the work was not defective.

As if this uninsurable liability of the design professional to its client was not bad enough, the previous decision created an independent duty of the design professional to third parties contrary to clearly expressed intend of the contract language of both the AIA Owner-Architect agreement and the Owner-Contractor agreement.  This new decision is in line with that of courts from jurisdictions around the country that enforce the contract as written, and solely for the benefit of the parties to the contract and not to third parties.

Contract language favorably quoted by the court from the AIA is affirmation of the prudence of using standard form contracts such as those of the AIA and EJCDC whenever possible.  The AIA forms contain appropriate language specifying the scope of services, the standard of care, and various responsibilities of the architect – and also articulates various matters for which the architect is not responsible – all as explained in this decision.

When assisting design professionals in negotiating non industry standard contracts with owners that have devised their own forms, this decision can provide a good road map for language to be included in those contracts.  As noted by the court, if design professionals are to legally become the guarantors of the quality of work performed by contractors, the design professionals will either opt not to provide the service, or if they provide it, the fees charged will have to be significantly higher to justify the increased risk.

With regard to the point about assuming the risk for higher fees, it is likely that most risk managers would advise against accepting guarantee and warranty responsibility regardless of how much extra fee the design professional might obtain, since this effectively creates liability for which the design professional has no professional liability insurance.

Reference to this decision is almost guaranteed in future workshops and webinars that I teach on design professional contractual risk management.

 

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 14, No.1 (Jan 2012).

Copyright 2012, ConstructionRisk.com, LLC