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CLAIMS STUDY

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

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  1. Erik M. Rosenwood Hamilton Moon Stephens Steele & Martin, PLLC and Jeff Todd Insurance Management Consultants, Inc. CLAIMS STUDY

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

  14. 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

  15. 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

  16. READY TO TRY AGAIN? WWW.DESIGNPROFESSIONAL.ORG

  17. 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

  18. 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

  19. 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

  20. 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

  21. 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

  22. 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

  23. LARGE ENGINEERING CLAIM • Back to our Questions to Consider: • Change in team/personnel? • Communication? DOCUMENTATION? WWW.DESIGNPROFESSIONAL.ORG

  24. 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

  25. 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

  26. 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

  27. 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

  28. 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

  29. 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

  30. 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

  31. 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

  32. 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

  33. 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

  34. QUESTIONS? Erik M. Rosenwood Hamilton Moon Stephens Steele & Martin, PLLC and Jeff Todd Insurance Management Consultants, Inc. WWW.DESIGNPROFESSIONAL.ORG

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