Liability by Design: A refresher of professional liability risks facing Engineers and protective measures to be conside

1. Liability by Design: A refresher of professional liability risks facing Engineers and protective measures to be considered Presentation to ASHRAE: NB PEI Chapter By Gregory A. MacLean January 12, 2010 MacLean Law

2. INTRODUCTION Topics to be covered: Sources of Liability Professional Negligence Landmark Professional Liability Cases for the Engineering Profession Professional Liability Arising from the Preparation of Plans and Drawings Personal Liability of Engineers Arising from Sealing of Plans and Drawings Potential Professional Liability Control Measures A Risk Management Checklist

3. Sources of Liability At Law Contract Professional Negligence Fiduciary Duties Property/ Intellectual Property Infringements Statutory Duties Concurrent Liability Limitation Period(s.28(1) of the Engineering and Geoscience Professions Act)

4. Relationships Owner - Consulting Engineer Consulting Engineer – Subconsulting Engineer Owner – Contractor – Subcontractor Engineer – Subsequent Owner Engineer – Occupant/Tenant or Neighbour of building Engineer – Manufacturer

5. Professional Negligence Negligent Misrepresentation False Statement is Negligently Made The Maker of the Statement is a person of special skill and knowledge The Maker of the Statement has reasonable knowledge that the skill or judgment will be relied upon and that careless behavior would result in loss The relationship of the parties is reasonably close that the wrongdoer might reasonably contemplate damages to that class of person and no policy considerations are in play to limit the duty owed to the individual There is Reliance on the Statement Loss is suffered as a result of the Reliance

6. Professional Negligence Standard of Care An engineer owes a duty to exercise the skill, care and diligence which may reasonably be expected of a person of ordinary competence measured by the professional standard of the time Engineers are not obliged to perform to the standards of the most competent and qualified members of the profession, unless they covenant to do so An engineer is to be adjudged by professional standards at the time the work was done, not by what may be known or accepted at a later date, or what may be seen only with the benefit of hindsight

7. Professional Negligence (con’t) It is sufficient for an Engineer to follow the accepted body of professional opinion, even though there may be substantial body of opinion to the contrary, as long as the Engineer applies the school of opinion he or she chooses to follow with reasonable competence Engineers do not guarantee their work will be successful. Provided that they have exercised reasonable judgment, competence and diligence in doing the work, the fact that it proves unsatisfactory in some way will not render them liable to the client for negligent conduct

8. Professional Negligence Duty of Care Proximity of relationship Forseability Policy Reasons – Unlimited Amount of Damages, Unlimited Scope of Claimants, Unlimited Scope in Time Reasonable and Proportionate Duty of Care is the biggest area of ongoing developments and evolutions in the law of professional negligence Who can Engineers ultimately owe a duty to when dispensing professional services?

9. CASELAW Central & Eastern Trust Co. v. Rafuse (SCC 1986) Professionals may be liable to clients both in contract and negligence – concurrently BG Checo International Ltd. v. British Columbia Hydro & Power Authority (SCC 1993) Liability for Professional Negligence/Negligent Misstatement to a client can be negated by clear contract wording between the parties which limits/disclaims such liability

10. CASELAW (con’t) Edgeworth Construction Ltd. v. N.D. Lea & Associates Ltd. (SCC 1993) Contractor has a cause of action in negligence against the design engineering firm hired by the owner for financial loss arising from errors in the designs incorporated in tender package and subsequent contract that contractor bid on and obtained Cause of action against individual engineers sealing the faulty design plans dismissed If the wording used by the owner (the Province of British Columbia) in the tender package “that the information was not warranted or guaranteed” had been clearly extended to cover the design engineering firm liability could have been negated Design engineering firm could have taken steps on its own to protect itself from liability

11. CASELAW (con’t) Winnipeg Condominium Corp. No. 36 v. Bird Construction Co. (SCC 1995) Contractors, subcontractors, architects and engineers who participate in the design and construction of a building owe a duty in tort and can be held liable to an injured person or to any party who has suffered physical damage to their property arising from their professional negligence

12. CASELAW (con’t) Contractors, subcontractors, architects and engineers who participate in the design and construction of a building owe a duty in tort to subsequent purchasers of the building when it is forseeable that a failure to take reasonable care in constructing the building would create defects that pose a real and substantial danger to health and safety of occupants Liable to pay reasonable costs of repairing the defects and placing building back in a non-dangerous state No risk of indeterminate liability – the class of claimants are the occupants of the building, the amount is the costs of restoring the building and parties will only be liable during useful life of the building. The Court crosses threshold of pure economic loss

13. CASELAW (con’t) Brett-Young Seeds Ltd. V. KBA Consultants Inc. et al (MCA 2002 & 2008) Plaintiff brings action for pure economic loss against engineer and others alleging negligent design of a grain hopper In 2002 claim dismissed as no reasonable cause of action apparent Plaintiff amends claim alleging negligent design created forseeable and substantial safety danger – in 2008 hearing court allowed the claim to proceed

14. Professional Liability Arising from Preparation of Plans and Drawings 2002 Canadian study indicated that of the claims submitted against Engineering professional liability insurers in Canada 33% were design related and 90% were contract based claims from the direct client rather than third parties. The preparation of plans, drawings and specifications is one of the chief duties of an engineer and as with all other forms of engineering services, the engineer is to use reasonable skill of such person of ordinary competence, measures by the professional standards of the time

15. Professional Liability Arising from Preparation of Plans and Drawings (con’t) Engineers can elevate the standard of care required of them by the term of their contracts, either expressly or impliedly Unless covered off in contract wording courts have often implied terms into design contracts: that the design will be reasonably fit for its purpose; that the design will be “workable” If plans/drawings are complicated and the party relying upon them has little opportunity to perform their own investigations/due diligence, the risk of liability increases

16. Professional Liability Arising from Preparation of Plans and Drawings (con’t) If the design is beyond the practitioner’s expertise, he/she has an obligation to ensure that a person with requisite skill is engaged An Engineer has to exercise reasonable care that the information presented reflects with reasonable accuracy the nature of the work If the Engineer has not verified specific info, he/she has a duty to inform others in clear terms that he/she does not vouch for the accuracy of the information

17. Professional Liability Arising from Preparation of Plans and Drawings (con’t) If an Engineer learns of a problem in a design, he/she has a duty to inform the other involved parties of this fact Designer has no obligation to advise which among possible alternate methods of construction to use Where a design involves an element of risk this has to be highlighted by the designer as well as professional advice given on the superior safety of any potential alternate design Designer may have a duty to abandon a project where the risks are substantial and their elimination difficult “the law requires even the pioneer to be prudent”

18. Personal Liability of Engineers Arising from Sealing of Plans and Drawings Section 9 of the Engineering and Geoscience Professions Act makes the use of engineering plans/drawings embossed with engineer’s seal mandatory

19. The Good News Pursuant to Edgewood Decision SCC found: 1) Legal position of individual engineers different than that of an engineering firm in that professional seals affixed to drawings by individual engineers were not sufficient to establish a duty of care to third parties 2) Seal was merely an indication that a qualified engineer had prepared the drawings, but was not necessarily a guarantee of the accuracy of the drawings 3) To be personally liable party would have to establish that it was relying upon the particular expertise of an individual engineer without regard to the corporate character of the engineering firm 4) The mere presence of the seal is not without more, sufficient indication of personal reliance or voluntary assumption of risk by that individual consultant

20. The Bad News In Strata Plan No VR 1720 v. Bart Developments Ltd. (BCCA 2000) the protection afforded by Edgewater was put to the test: 1)Plaintiff did not engage defendant structural consulting firm due to particular skill of any individual engineer they could identify by name 2)However, court found that the individual engineers having a significant degree of experience and technical skill and being actively involved in the preparation of a report to the plaintiff such that they would have known the plaintiff was relying upon their report

21. The Bad News (con’t) 3)Employees must realize clients are engaging and relying upon their skill and therefore owe a resulting duty of care to clients from which personal liability will arise if failing to meet the duty 4)Corporations can limit the exposure of tort to individual engineers by use of appropriate contractual provisions

22. Grey Area Personal liability of engineers vs. corporate/firm liability is a matter of factual analysis on a case by case basis as to whether an individual engineer is deemed to have had enough professional involvement in any given situation to be held personal liable over and above liability owed by his/her firm or company Maintain personal professional liability insurance Make use of contractual disclaimers wherever possible limiting personal liability

23. Potential Professional Liability Control Measures Use disclaimers of responsibility to third parties on the design documents Use the contract with client/customer to negate the imposition of a duty of care in tort, limit the amount of damages claimable in contract and negate claims of personal liability whether in contract or tort Refuse to provide designs without supervisory opportunities duties in the implementation of the design Accept the fact that there will reliance on the design by third parties, to their detriment if there is a design problem, and insure accordingly

24. Exculpatory Clauses Indemnity Agreements Hold Harmless Agreements Limitation of Liability Clauses Prior Release Clauses Disclaimers

25. A Risk Management Checklist 1) Client Selection Investigate track record Extra caution when taking over from somebody else mid-project Extreme caution when taking over when previously prepared plans are in use

26. A Risk Management Checklist II) Project Selection Do not offer services beyond the scope of your professional expertise or that of your firm Do not offer services/product beyond the abilities of your subcontractors or suppliers Do not oversell or guarantee results

27. A Risk Management Checklist III) Subconsultants Choose well based on experience & Qualifications Consider having client engage subconsultants directly (avoid vicarious liability) If direct engagement with subconsultants, ensure they have adequate professional liability Clearly identify roles and responsibilities

28. A Risk Management Checklist IV) Form of Contract Written not verbal Standard form/industry produced agreements are better than making something up on the fly if you don’t have time to carefully prepare and have vetted by legal counsel Should review even standard form agreements to ensure appropriate for particular project (Supplemental Conditions added to CCDC documents for instance) If possible offer your own form of contract (avoids built-in prejudices)

29. A Risk Management Checklist IV) Form of Contract (con’t) Make sure adequate compensation for extra work Attempt to limit professional liability to professional liability coverage in place and a reasonable period of time for a claim to be brought Consider other contractual mechanisms to limit liability both with contracting party and with parties it is dealing with (see exculpatory clauses) Understand the contract – do not agree to something you don’t understand Do not agree to indemnification provisions requiring guarantees or warranties beyond those standard in the industry or for what you are insured for

30. A Risk Management Checklist V) Insurance Maintain adequate liability insurance coverage with appropriate policy deductable and policy limits Confirm whether personal liability exposure is adequately covered off Especially maintain separate personal coverage if your firm goes out of business, fails to renew its liability coverage or if you retire and the above two scenarios applies Establish and/or maintain relationship with knowledgeable and dependable insurance broker – that identifies coverage needs and the limitations of different coverages Consider project specific professional liability coverage on large/higher risk projects

31. A Risk Management Checklist VI) Client Relationship Establish single point of contact if possible Educate and keep client informed concerning the nature and progress on a project Regular project status meetings Confirm things in writing

32. A Risk Management Checklist VII) Subtrade Relationships Establish single point of contact if possible Do not advise subcontractor as to construction means, methods, techniques, procedures if already clearly defined by project documents Do not step outside bounds of authority Regular project status meetings Confirm things in writing

33. A Risk Management Checklist VIII) Record Keeping Maintain good recordkeeping All paper should be categorized and permanently archived for future reference All electronic documents (including e-mails) should be organized and maintained by file reference for future reference

34. A Risk Management Checklist IX) Handling Claims/ Mistakes Do not adopt turtle approach/ Do not adopt the hare approach If possible maintain supervisory role in implementation of designs Attempt to identify/investigate problems early to allow revisions to designs, revisions to materials and/or mitigation of losses Do not wait too late to notify insurer/insurance broker/legal counsel of problems Document in writing

35. MacLean Law Questions??