J. Kent Holland, J.D. © 2011
A young woman fell twenty feet and was paralyzed when the balcony of a home she was visiting tore away from the house and collapsed. She sued the architect that designed the house and performed construction administration services – asserting he owed her a duty of care and was negligent in the performance of his services. Although the architect’s contract was solely with the home owner, the court held that the guest had third party rights against the architect, and that a jury could consider expert evidence to determine whether the architect was negligent and, therefore, liable for a share of the multimillion dollar damages. As stated by the court in Black+Vernooy Architects v. Smith, 2010 WL 5019659 (Dec 2010), the architect/engineer (“A/E”) has a duty, “after having contractually agreed to ‘endeavor to guard’ against defects and deficiencies, to notify the owner of open, obvious, and observable defects implicating critical safety and structural integrity concerns” [and this duty] “extends to third-party visitors who are ultimately injured….” The court concluded that “[A/Es’] duty to use due care in fulfilling its contractual duties … extended to those persons foreseeably subjected to the risk of personal injury.”
Typically, two distinct issues are presented when a design professional is sued for negligent performance. The first issue is whether the design professional owed any duty of care to the claimant at all. If so, then the second question is whether the design professional satisfied their obligation by fulfilling a duty of performing its services consistent with the applicable professional standard of care.
In the Black+Vernooy case, the quality of the architect’s design was not in question. The issue was whether by failing to observe and report various construction defects, the architect had thereby failed to satisfactorily perform its construction administration services. Pursuant to the applicable AIA B 151-1997, Owner-Architect agreement, the purpose of the architect’s site visits was “to endeavor to guard the Owner against defects and deficiencies in the Work.” Problems with the construction work included: The balcony was not bolted to structural members of the house; a rim joist and wood block was not used; light-weight clips were used instead of specified welded tabs for handrails; and the handrail was not bolted to the house. Not only were these defects found by the court to be readily observable, they noted that the defects had even been photographed by the A/E’s site observer during construction, and the A/E failed to notify the owner about the defects.
He testified that safety of the balcony is such a critical matter that a reasonable A/E should pay special attention to its structural integrity during construction administration services. A jury found the A/E negligent. The A/E appealed — arguing it had no duty to identify the defects shown in the photos; and even if it had a duty, it was owed only to its client and not to visitors to the home. The court held “the A/E had a duty to identify significant deviations from its own design drawings when those deviations implicated critical structural integrity concerns and were plainly visible on photographs….”
What is the Professional Standard of Care?
The common law standard of care for performance of design professional (DP) services is generally defined as the ordinary and reasonable care usually exercised by one in that profession, on the same type of project, at the same time and in the same place, under similar circumstances and conditions. Perfect performance is not required by the common law.
As explained by one court: “As a general rule, [a]n architect’s efficiency in preparing plans and specifications is tested by the rule of ordinary and reasonable skill usually exercised by one of that profession… [I]n the absence of a special agreement he does not imply or guarantee a perfect plan or satisfactory result. Architects, doctors, engineers, attorneys and others deal in somewhat inexact sciences and are continually called upon to exercise their skilled judgment in order to anticipate and provide for random factors which are incapable of precise measurement. The indeterminate nature of these factors makes it impossible for professional service people to gauge them with complete accuracy in every instance.” Another court succinctly stated, “In the absence of special terms and conditions such as guarantees, warranties, and standards of care, the Architect/Engineer does not expressly or impliedly guarantee a perfect plan or satisfactory result. Liability rests upon negligence and not upon mere errors of judgment.”
This general professional standard establishes the baseline. Thus, the design professional is responsible to its client if the performance of its services fails to meet the standard of care for its profession under the circumstances for the particular project. Services that fail to conform to the standard, and thereby cause the owner or the client to sustain damages, may be deemed negligent.
We know from the above-quoted court decision, and many others like it throughout the country, that DPs are not expected, or legally required, to be perfect. What this means as a practical matter is that if a DP performs its professional services for a client without any written contract or pursuant to a contract that contains no standard of care clause, the courts will hold the DP to the standard of care that is determined by expert testimony to be that which is the generally accepted standard of care applicable to the services.
Failure to meet the generally accepted standard of care is deemed to be negligence. Professional liability insurance policies are intended to provide coverage to protect the design professional against claims arising out of its negligent performance. Thus, the negligent act, error or omission is covered by insurance.
The fact that clients of DPs often seek, via contract language, to require the DP to agree to something greater than the generally accepted standard of care creates uninsurable risks and liabilities.
Not All Mistakes, Errors and Omissions are Due to Negligence
Mistakes happen. To err is human. There are numerous examples of mistakes, errors and omissions that are not actionable as breaches of the standard of care. Examples include:
- Ordinary mistakes
- Design professional uses owner’s bad data that it reasonably relied upon
- Vendor’s data is misleading or wrong
- Unforeseen site condition is not detected through normal investigations
- Misinterpretations of code requirements
- Details are left out of the plans and specifications, or the details are internally inconsistent
- Design changes are necessitated by changes in laws, regulations and codes after the project begins
Unreasonable Owner Expectations of Design Perfection
It seems more and more project owners are seeking perfect results from design professionals. Note that I said perfect “results”. This goes beyond expecting “perfect services” which might or might not give the owner the results hoped for even though the professional services were fine. Some common misperceptions of project owners include the following:
- Contract documents are 100% complete, have no defects and provide all the details necessary for the contractor to build the project
- No mistakes or errors should ever be made by design professionals
- Design professional should pay for ANY and ALL mistakes and errors
- If there are more than a few contract Requests for Information (RFIs), the DP must be at fault
- No construction change orders should be expected, and any change order must be the design professional’s responsibility
- The owner should have to pay only for construction changes it initiates
- During construction administration, the DP is to assure that the contractor meets all details of the plans and specifications and builds the project perfectly
- The DP should guarantee that it will comply with every conceivable law, ordinance and regulation
- Contingency budgets should not be necessary
The typical owner with these erroneous expectations of what is reasonable to expect of the design professional inevitably thinks it should get perfection for no extra cost. Some of the ways that owners push for this standard of perfection include:
- Contractual risk transfer, requiring the DP to accept responsibility for all mistakes, errors and omissions even if generally accepted standard of care is met
- Claims against the DP seeking to recover all construction change order and redesign costs from the DP even if not caused by negligence
What are the Consequences of the Owner Seeking Perfection?
Some of the unintended and problematic consequences that occur when project owners seek design professional perfection include:
- Increases costs due to extra time and effort to perfect design before beginning construction (perfection is not reasonably achievable)
- Creates adversarial relationships
- Defeats collaborative and cooperative team approach, thereby decreasing the likelihood of a successful project
- Creates uninsurable losses
- DP is viewed as a source to pay for any cost “overrun”, including changed conditions and frivolous change orders
- DP spends hours of non-billable time fixing any and all “deficiencies”
- DP must defend itself against claims, even when it met standard of care
- Client feels the DP is not a “team player” when it later objects to its treatment by the owner
Establishing the Standard of Care
The applicable standard of care is established largely by the common law as described above, in conjunction with the scope of service that is set forth in the contract between the DP and its client. Some courts have looked beyond the contract terms to conclude that the DP’s duty to the health, safety and welfare of the public created some duty beyond what was called for in the contract. By and large, courts generally focus on what was called for in the contract as establishing the basis for the standard of care.
Look First to the Contractual Scope of Service
A recently decided important case held that the engineer’s duties were established by the contract and that those duties cannot be expanded by the plaintiff’s expert witness to elevate the standard of care.
In Corrine Thompson v. Christie Gordon, (N. 110066, Sup.Ct. Illinois, (2011)), the engineer had a contract to design a replacement bridge deck that would be virtually the same as the one being replaced. The engineer performed its scope of services to the satisfaction of its client. Years later, a car hit the low median separating the lane of traffic on the bridge and vaulted over the median into oncoming traffic. The family sued the engineer, arguing the engineer had a duty and was negligent in several regards, including (a) not performing a median barrier analysis, (b) not considering the necessity of crossover protection, and (c) not including a Jersey barrier in its design. The trial court granted summary judgment for the engineer because it met requirements of contract and owed no independent duty to the plaintiff. The intermediate appellate court reversed the favorable trial court decision, but the state Supreme Court reversed that decision and reinstated the summary judgment for the engineer. The contract set forth the standard of care as: “the degree of skill and care and diligence normally employed by professional engineers or consultants performing the same or similar services.”
The state Supreme Court held: “The standard of care was limited to the degree of skill and diligence normally employed by professional engineers performing the same or similar services, namely, replacing the bridge deck – [and] replacing the bridge deck did not include improving the bridge deck or considering adding a Jersey barrier.” The court also held that the engineer’s duties were confined to those explicitly stated in the contract and should have been decided as a matter of law rather than allowing expert testimony to attempt to expand those duties beyond what was called for by the contract.
No Warranty as to Professional Services
In Rochester Fund Municipals et al. v. Amsterdam Municipal Leasing Corporation, 296 A.D.2d. 785, 746 N.Y.S.2d 512 (2002), in response to a plaintiff’s suit against an engineer that alleged breach of an express warranty, a court held that the complaint must be dismissed because the record revealed no express warranty, and if the service was performed negligently the cause of action must be based in negligence rather than warranty. The engineer had been retained to provide professional services with respect to the design of a sludge treatment facility. In analyzing the allegations contained in the plaintiff’s complaint, the court stated that those allegations could not be construed as asserting either a negligence or a breach of contract claim. Citing several New York court decisions, this court stated as a matter of law that “no warranty attaches to the performance of a service.” Whatever representations were made by the engineer in its contract did not, in the court’s opinion, rise to the level of guaranteeing a particular result.
Expert Witness Testimony is Required
To determine whether an act, error, or omission was negligent, the Owner will generally have to present expert witness testimony to establish the applicable standard of care and show how the DP failed to conform to it. In defense, the insurance company will generally present an expert witness to establish what standard of care, in the expert’s opinion, should have been applied, and how the DP complied with that standard. Absent a contractual undertaking by the DP to a standard of care greater than the ordinary standard of care, the Owner cannot prevail against the DP unless the jury or judge decides, based on the expert testimony, that the DP was negligent.
When suing a DP for professional negligence, a plaintiff is required to present expert testimony to establish what standard of care was applicable and the DP failed to meet the standard of care. Numerous court decisions every year address the adequacy of expert testimony or dismiss cases because a plaintiff attempted to prove its case without even calling an expert – or called an expert that was not qualified to testify.
In Pond Hollow Homeowners Assoc. v. The Ryland Group, 779 N.W.2d 920 (Minn. App. 2010), the court held that a complaint must be dismissed with prejudice where an expert affidavit failed to adequately establish the applicable standard of care. In this case, homeowners sued a builder for water table and drainage problems. The builder in turn sued the engineer that surveyed and engineered the site. An expert witness for the builder submitted an affidavit that stated: “It is my opinion that [engineer] … deviated from the standard of care applicable to engineers in that it failed to properly recognize and evaluate the water table when determining the minimum building pad evaluations.”
The trial court ruled the expert testimony was not sufficient to establish the standard of care and it dismissed the case accordingly – but dismissed it without prejudice. On appeal, the appellate court held that the case must be dismissed with prejudice because without a sufficient affidavit there was no legal basis for the claims and the dismissal constituted a final determination on the merits. Agreeing that the affidavit was inadequate, the court said that the witness did “not explain how a ‘proper’ evaluation or recognition is performed, nor [did] he explain industry practices or refer to contract or industry guidelines related to evaluation or recognition of a water table…. Although the witness did refer to the ‘applicable’ standard of care applicable to engineers, no such universal standard is defined in the affidavit. Case law dictates that [builder] was required to establish a standard of care tailored to the work that [engineer] was hired to perform.”
Cases addressing the necessity and adequacy of expert witness testimony are fascinating, but for the sake of brevity, I refer the reader to the library of casenotes at found on my website at www.ConstructionRisk.com.
Watch Out for Contract Language
Owners sometimes include language in their contracts requiring the DP to perform to a standard greater than the generally accepted standard. For example:
Design Professional represents that its services will be performed in a manner consistent with the highest standards of care, diligence and skill exercised by nationally recognized consulting firms for similar services.
Several concerns with this clause are apparent, including:
(1) The “highest standard” is an unknown. Unlike the normal standard of care which can be determined from reference to code books, customs in the practice, and peers from similar projects, you may not know the “highest standard” until you get to court and another DP from some other part of the country testifies to the greatest and best, cutting edge/state of the art technology being used 2,000 miles away for similar services. The “highest standard” is an undefined term that presents open-ended risks that cannot easily be understood and applied.
(2) The owner who demands this standard of care probably does not expect the DP to actually practice any higher standard, since that might entail an over-designed (and a more expensive) project. In fact, the owners that most often insist on this standard are also the tightest with budgets and are the most demanding and difficult to get along with on a project when things do not go exactly as they hoped. They expect the best possible service for the lowest possible price.
(3) By agreeing to a “highest standard” of care, DPs may subject themselves to liability for breach of contract even though there was no negligence on their part and sustain an uninsurable loss. If, for example, the owner has sued the DP for mistakes and the expert witness shows that the DP was not negligent, the DP could prevail on the part of the complaint that alleges negligence. However, the DP could very well lose on the part of the complaint that is based on breach of contract. If the DP prevails on the negligence count and loses on the breach of contract count, the DP’s professional liability policy may not cover the loss because it may be excluded by either the “contractual liability” or “warranty” exclusions of the policy.
(4) Agreeing to the “highest standard” may also be viewed by some owners and courts as constituting an express warranty or guarantee regarding the results to be achieved by the DP’s services. Again, if viewed this way, the loss may be specifically excluded from coverage by the “warranty” exclusion of the DP’s professional liability policy.
It is not in the owner’s best interest to require anything other than the ordinary standard of care. Most owners understand that DPs do not have substantial business assets, and if there are damages to be recovered, the owner must look to an insurance company rather than the DP. Since the language of this clause most likely creates an uninsurable contractual liability, the owner has arguably gained nothing of substance by insisting on it. In fact, it might even so skew the legal basis for the owner’s suit that the insurance company would have no responsibility at all under the policy.
Additionally, there is substantial case law addressing the issue of the standard of care. In deciding liability based on that standard, parties to the contract are probably better served by relying on the precedents established in those reported cases.
Compromise Language to Address Highest Standard of Care Language
In instances where the owner has refused to delete the “highest standard” language after having been engaged in the previous discussion, some owners have added a sentence to the end of their “highest standard” clause stating:
The performance standard is not intended to create a warranty, guarantee or a strict liability standard, and it is expressly agreed that Design Professional is agreeing only that its services will not be performed negligently or with willful or reckless misconduct.
AIA B101-2007 and EJCDC E-500 – Standard of Care
The current American Institute of Architects (AIA) Owner-Architect Agreement (AIA B 101 – 2007) explicitly states the standard of care to which the architect must perform. Section 2.2 reads as follows:
The Architect shall perform its services consistent with the professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances. The Architect shall perform its services as expeditiously as is consistent with such professional skill and care and the orderly progress of the Project.
The first sentence, which describes the standard of care, is the formulation most commonly applied by the courts. In addition to establishing the same standard of care that the courts would impose at common law, the clause also addresses the timeliness of performance. It avoids the problem created by clients who want to make time of the essence. A “Time of the essence” clause is essentially an uninsurable warranty or guarantee that the services will be completed by a specified date. By tying the time for performance to the standard of care, it gives the DP some flexibility to not meet the schedule where it is impossible or imprudent to do so in light of additional time needed to perform consistent with the standard of care.
The Engineers Joint Contract Documents Committee – Owner/Engineer contract, EJCDC E-500, addressed the standard of care similarly to the AIA, but it adds disclaimer language about warranties and guarantees. Section §6.01.A of the EJCDC contract provides as follows:
Standard of Care: The standard of care for all professional engineering and related services performed or furnished by Engineer under this Agreement will be the care and skill ordinarily used by members of the subject profession practicing under similar circumstances at the same time and in the same locality. Engineer makes no warranties, express or implied, under this Agreement or otherwise, in connection with Engineer’s services.
Treatment in ConsensusDOCS
ConsensusDOCS 240 does not define the standard of care. Instead, Paragraph 2.2 of one recent version of this contract defines the relationship of the Owner and Architect/Engineer:
The Architect/Engineer accepts the relationship of trust and confidence established by this Agreement and covenants with the Owner to cooperate and exercise the Architect/Engineer’s skill and judgment in furthering the interests of the Owner. The Architect/Engineer represents that it possesses the requisite skill, expertise, and licensing to perform the required services. The Owner and Architect/Engineer agree to work together on the basis of mutual trust, good faith and fair dealing, and shall take actions reasonably necessary to enable each other to perform this Agreement in a timely, efficient and economical manner. The Owner and Architect/Engineer shall endeavor to promote harmony and cooperation among all Project participants.
The terms “trust and confidence” might imply a fiduciary relationship and thus a heightened standard of care, which could be uninsurable under the typical Professional Liability policy. Note that the above quoted clause is from the original 2007 version of this document. ConsensusDOCS has revised the clause since then to delete some of the fiduciary language.
The ConsensusDOCS 240 may also increase the standard of care by requiring more complete construction drawings than those generally provided. Contractors and design professionals frequently debate whether disputed work is reasonably inferable from the construction documents. ConsensusDOCS 240 requires these documents to “completely describe all work necessary to bid and construct the Project.” The stipulation in the ConsensusDOCS that the designer must “completely describe all work necessary to bid and construct the Project” will undoubtedly aid the contractor in a dispute over the quality of the documents.
Please note the ConsensusDOCS are revised more frequently than the AIA and EJCDC documents and some of the newer editions of the ConsensusDOCS 240 contain certain revisions that may resolve some of the issues discussed here. It is important to know which edition of the document you are using and read it carefully.
Generically Disclaim any Express or Implied Warranties
Some clients are including clauses in their form contracts treating Design Professionals more like construction contractors than DPs. For example:
Architect represents and warrants that it will take total responsibility for errors and omissions on its documentation and will rectify all such instances at no additional cost to Owner.
If the contract presented by an owner seems to have different clauses scattered throughout that contain requirements exceeding the generally accepted standard of care and potentially create warranties and guarantees, the following clause might help clarify the standard of care and disavow any inadvertent warranties hidden in the contract:
“Standard of Care”. Notwithstanding any clause in this Agreement to the contrary, Design Professional expressly disclaims all express or implied warranties and guarantees with respect to the performance of professional services, and it is agreed that the quality of such services shall be judged solely as to whether Design Professional performed its services consistent with the professional skill and care ordinarily provided by firms practicing in the same or similar locality under the same or similar circumstances. Nothing in this Agreement shall be construed to establish a fiduciary relationship between the parties.”
Some owner-generated contracts contain language that looks like uniform commercial code (UCC) warranty provisions. One such contract required the engineer to agree not only to the “highest” standard of care but also that the services would be “fit for the purposes intended” by the client. The clause provided the following:
Warranty. Engineer warrants that the Services shall be performed in accordance with the terms of this Contract and all applicable federal, state and local laws, ordinances and government rules and regulations; and the highest standards of professional engineers performing similar services; and that the product of the Services shall be fit for the purposes intended by Client.
Another contract with UCC-type language provided as follows:
Design Professional warrants that its Services shall result in a design that will allow for the successful operation of the Facility, including the suitability and fitness of the Project for the use for which the Project is intended.
This could arguably create a warranty of fitness for intended purpose, much like a UCC warranty. If a court were to find the A/E liable for breach of warranty language instead of failure to meet the professional standard of care, the express warranty exclusion of the professional liability policy would be applied to deny coverage.
Compliance with Law
Contracts often include a clause assuring that the DP shall comply with all laws, regulations, codes and ordinances, and be responsible for damages resulting from lack of compliance. Although such a clause may seem reasonable at first, it can create an absolute warranty and guarantee that your services will comply with laws, regulations and ordinances that you reasonably believed did not apply to the services being rendered.
An example of such an owner-generated clause is as follows:
Regardless of where services are to be performed, Design Professional shall at all times comply with any and all applicable foreign, federal, state, and local government laws, ordinances, statutes, standards, rules, regulations, and guidance, including but not limited to those relating to working hours, working conditions, health and safety, and the environment, and shall indemnify and hold harmless Owner against any claims, damages or losses arising out of or relating to the failure to comply.
Consider a situation in which you evaluate the meaning and application of a particular regulation to your services. Based upon your interpretation of that regulation, you create designs and perform other professional services that an agency later concludes fail to meet the regulatory requirements.
You disagree with the regulator, but the owner is required to pay fines, penalties and damages to the government and re-perform the work consistent with the interpretation that the regulators give. If you commit to absolute compliance with all the laws and regulations, you could be liable to the owner for breach of contract, warranty or guarantee. Such liability is excluded from coverage by most professional liability policies.
The nature of rendering professional services requires you to exercise your professional judgment concerning the reasonable interpretation and application of law and regulations to the services being performed. Exercising reasonable care to comply with such laws and regulations is all an owner should realistically expect of you. A more reasonable clause is:
In performing professional services, Design Professional shall exercise the professional standard of care in the identification and application of applicable codes, laws, regulations, and standards.
Guaranteeing Cost Estimates and Budgets
Many owner contracts are requiring the Design Professional to essentially guarantee that there will be no costs exceeding the construction cost estimate. Any revisions to plans or changes that have to be made in order to keep the project within the required budget then become the responsibility of the DP. An example of such a clause applicable to the design phase is:
The Design Professional shall provide Owner with a Project Budget estimate. . . . If agreement on any of the Project budget estimates cannot be reached between Design Professional and Owner, Design Professional, with the assistance of Owner, shall redesign the Project as necessary to meet the Owner’s Project budget requirements at no additional cost to Owner.
On even the most basic project, the costs can differ from what was anticipated by the DP because of conditions and situations beyond their control. By using the word “opinion” of probable cost instead of cost “estimate”, it may be clearer that the DP is exercising its professional judgment in compliance with the professional’s general standard of care. This establishes a legal defense that, although the cost opinion proves to be incorrect, the DP is not liable to the owner since it met the standard of care. To prove otherwise, the owner would typically have to present expert testimony to the contrary. Contract clauses should clearly state that the cost opinion is not a guarantee of cost either as to the DP’s fee or the ultimate construction costs to be paid to others. For example:
Design Professional shall prepare an opinion of the probable costs of construction. Design Professional has no control, however, over (a) the cost of labor, material, or equipment; (b) the means, methods and procedures of the Contractor’s work; or (c) the competitive bidding. Design Professional’s opinion of probable cost shall be based on its experience and qualifications and represents its judgment as a Design Professional, but shall not be a guarantee that construction costs will not vary from its opinions of probable cost.
There are numerous potential traps in contract language that may elevate the standard of care beyond that which is insurable under a professional liability policy. When reviewing the contract, it is important to evaluate what standard of care is required and to eliminate contract language that is uninsurable because it elevates the standard beyond what is required by common law.
Note: This paper was originally published by Zurich NA as an A/E Briefings, 2011.