One cannot venture too far when discussing professional liability without understanding first the concept that that the coverage trigger for such insurance policies are an allegation that the engineer or architect engaged in the “negligent deliverance of professional services such services that they were legally qualified to perform.” [This is the basic insuring agreement in virtually all professional liability policies issued by reputable carriers.] The concept of “negligence” literally means that the engineer or architect failed to meet the standard of care that another engineer or architect would have applied on a similar project, in a similar locale with a similar scope of services. [Known as the “average man” standard.] Specifically, the engineer or architect is NOT held to a perfection standard of care. Unfortunately, many project owners misunderstand this fact and attempt to contractually raise the engineers or architects standard beyond that of negligence. In doing so, the owner can often times negate the availability of the engineers or architects professional liability insurance policy [ironic when one considers that someplace in their contact is a section labeled “insurance requirements” where an owner or contractor will spell out [in great detail] the limits and types of insurance that must be maintained for their protection.]

A major problem for many engineers or architects is when owners “sneak” hidden [or less obvious] language into their contracts that serve to raise the standard of care beyond negligence. Sometimes such language can raise a contractual provision to the level of a “warranty or guarantee” which would certainly be beyond the negligence trigger. A standard provision in all professional liability policies for engineers and architects is an exclusion for warranty or guarantee statements made by the design professional. A typical exclusion states the following:

[EXCLUSION] Express Warranties, Representations, Guarantees and Promises for or arising out of or resulting from:

Below are some of the ways in which we help our clients better describe themselves to PL underwriters during the application process.

     1. breach of any express warranty or representation except for an agreement to perform within a reasonable standard of care or skill consistent with applicable industry standards; or

     2. breach of guarantee or any promises of cost savings, profits, or return on investment.

The specific reasons why “warranties and guarantees” are excluded from all engineers and architects professional liability is because such statements [1] serve to raise the standard or care above the negligence trigger and [2] they specifically limit the insurance company’s ability to mount a defense on your behalf because you either did or did not meet the warranted or guaranteed outcome.

The more common “tells” in a contract that should raise red flags include language or phases with modifiers such as “certify”, “guarantee” and “warrant”. Additionally you should beware of “absolute”; “unlimited”; “all”; “strict conformance with”; “complete”; “each and every”, “design in complete and strict accordance with”; “best” or “highest” and any other extraneous modifiers that are not easily defined and / or raise your standard above negligence. [Any standard that is not easily defined is a sure fire recipe for such definition of what is the “highest or best” to be determined by an expert’s opinion or testimony. I can promise that such testimony will describe “the best” as other than that which you designed.]

A common contractual trend is the hidden warranty provision which includes the language that the engineers or architects services [or plans] comply with “all laws, regulations, codes, and standards.” [Sometimes this also includes language relating to ADA compliance which is technically a civil rights code and not a building code.] In the event of dispute over code compliance, an insurance carrier can point to the standard “warranty and guarantee” exclusion in the professional liability policy and deny coverage availability on those grounds. [Although we have not seen this happen specifically, a carrier would be within their rights to deny coverage as it relates to same.] The engineer or architect should look to modify such clauses with softening language that will bring the standard back to “negligence” and remain insurable from a professional liability standpoint. For example:

* Design Professional shall review laws, regulations, codes, and standards in effect as of the date of this agreement that are applicable to the Design Professional's services and shall exer­cise professional care and judgment to design in compliance with require­ments imposed by governmental authorities having jurisdiction over the project.

OR

* Subject to the generally accepted standards of professional skill and care, reflect, incorporate and comply with such requirements, laws, ordinances, regulations, orders and interpretations. It is understood, however, that various codes and regulations are subject to varying and sometimes contradictory interpretation. Architect or Engineer shall exercise its professional skill and care consistent with the generally accepted standard of care to provide a design that complies with such regulations and codes.

With the industry movement towards “sustainable design” and owner’s desire for LEED [or equivalent] certification, the “Green Movement” has created similar “warranty or guarantee” issues that will be the subject of another article. [NOTE -- I would be happy to provide a white paper on “Green contract clauses” to any interested party who e-mails me.]

Although we have our own attorney on staff, do not misconstrue this as legal advice. Statements are made as practical risk management advice. Most engineer and architect professional liability brokers will offer contractual review services for insurability in conjunction with their professional broking / brokering services. In lieu of a brokerage or carrier review, I would encourage all engineers and architects to develop a relationship with a good “Built Environment” attorney who can generally provide contract drafting, review and negotiation services as part of an overall practice management offering to supplement the insurability reviews offered by the broker and carrier.

Timothy Esler's original articles are published in The Zweig Letter.