Out west, near Hawtch-Hawtch

Out west, near Hawtch-Hawtch,
there’s a Hawtch-Hawtcher Bee-Watcher.
His job is to watch …
is to keep both his eyes on the lazy town bee.
A bee that is watched will work harder, you see.
Well…he watched and he watched.
But, in spite of his watch,
that bee didn’t work any harder. Not mawtch.
So then somebody said,

hbqrpe6s_400x400 “Our old bee-watching man
just isn’t bee-watching as hard as he can.

 He ought to be watched by another Hawtch-Hawtcher.
The thing that we need
is a Bee-Watcher-Watcher.

-Dr. Suess

With my thanks (and apologies) to Dr. Suess, the Bee-Watcher always comes to mind when defending claims alleging negligent supervision and inspection against design professionals.

A recent case from the Court of Appeals in Mississippi provides guidance as to the liability of design professionals for supervision and inspection obligations beyond those assumed in their contract.  In McKEAN, v. YATES ENGINEERING CORPORATION, an engineer was sued from injuries that resulted from scaffolding failure during the construction of a medical center.

The engineer was to provide design drawings for the scaffolding and second-story form work. The plan provided was fundamentally flawed. Even though the plan was effectively impossible to follow, the contractor had no comments or questions about the design and it ignored essential features of the scaffolding design.

After the scaffolding collapsed, the plaintiffs claimed the engineering firm was “negligent in inspecting the scaffold[ing] and failed and/or refused to correct known deficiencies and defects in the construction [that] made it dangerous to use prior to the subject incident.” The engineer, however, did not have that duty under its contract.

Plaintiffs claimed the engineer negligently failed to inspect the scaffolding before concrete was poured. However, there was no contractual duty on the engineer to do so. For this reason, the Court examined the circumstances when a design professional’s supervisory powers go beyond the provisions of a contract.  It enumerated seven factors that it believed should be considered in determining whether there was such a duty. These were: (1) actual supervision and control of the work; (2) retention of the right to supervise and control; (3) constant participation in ongoing activities at the construction site; (4) supervision and coordination of subcontractors; (5) assumption of responsibilities for safety practices; (6) authority to issue change orders; and (7) the right to stop the work. The Court found that the evidence did not support the conclusion that engineer had a duty to inspect the scaffolding.

We frequently see similar claims of failure to observe, inspect, or supervise asserted against architects as well as engineers.

This case provides a cautionary tale and useful guidelines to design professionals about the risks of assuming obligations not contained in their contract.

If a design professional performs supervisory and inspection tasks, notwithstanding the limited scope of its contract, courts may find the design professional ‘assumed a duty of safety’ which may leave it liable for damages notwithstanding any understanding to the contrary.

Casey Quillen’s firm is a member of the AIATrust Legal Network providing full legal service to design professionals throughout Colorado.  Ruebel & Quillen, LLC now has an office in Steamboat Springs, CO to better serve firms West of the Continental Divide.

Emerging Copyright Case

shutterstock_159358187The Architectural Works Copyright Protection Act provides protection to original designs of architecture in virtually any form, including architectural plans, drawings and buildings.  These designs have historically been treated as intellectual property belonging to the design firm that created it.

The concept that the design professional retains this right is plainly stated in standard form contracts such as those published by the American Institute of Architects (AIA) and the Engineers Joint Contract Documents Committee.

The standard AIA provision provides that the drawings are “Instruments of Service” and the license to use them can be withheld by the Architect in the event of a dispute between the Owner and Architect.

There have been a number of cases in which an architect’s drawings were used to complete a project when the original project developer transferred the project. In several of these situations, the original architect successfully sued the new developer for the unauthorized use of his design documents.  A recent decision from an Ohio court bolstered this principle and extended the risk of copyright infringement to the contractor and subcontractors.

In Eberhard Architects v. Bogart Architecture, an architect terminated the owner’s use license after failure to pay.  The architect also notified the contractor and subcontractors that the license to use the drawings had been terminated.  The architect sued the owner for breach of contract (due to non-payment), and also the contractor and subcontractor for copyright infringement (for continuation of work utilizing the Architect’s plans). The court held that the contractor and subcontractors could be liable for copyright infringement by continuing to work on the project.

The plain language of the AIA contract was paramount to the architect’s success.

By way of contrast, the provisions of the Construction Owners Association of America (COAA) contract form grant the owner of the project all rights to any “documents or electronic media prepared by or on behalf of the professional for the project.”  Such a clause effectively releases the design professional’s intellectual property rights irrespective of the Architectural Works Copyright Protection Act.

Although Eberhard may have little impact on Colorado design professionals, it is an excellent illustration of the importance that all construction professionals must analyze and understand the project contracts and educate themselves on the risks involved – whether those risks be waiver of intellectual property rights or potential liability for copyright infringement.

Casey Quillen is a member of the AIATrust Legal Network providing full legal service to design professionals throughout Colorado.

When Insurance Fails You

In purchasing a professional liability policy, a firm is counting on a broader financial entity – an insurance company – to absorb all or a portion of the cost of claims and litigation in exchange for premiums paid.

There are a number of articles from AIATrust regarding risk management and how to respond if a claim arises.  However, there are few mentions of what to do if your insurer denies your tender of a claim.

“Why would my insurer deny a claim? Isn’t that the whole reason I pay premiums – for coverage?” You ask.

Let’s presume you purchased your first policy from Company A in 2009.  You renewed your policy faithfully in 2010, 2011, and 2012.  Then you switched to Company B in 2013.  In the middle of that year, you received a letter from an attorney putting you “on notice” of a claim against you from a project you had designed back in 2009.  You send it you your agent – but the carrier comes back with a denial of coverage. What happened?

There are differing insurance policies.  In some, coverage is triggered based on the date the claim is made.  In others, coverage is triggered based on the date of the “occurrence”.  And some have their own unique language.

In the scenario above, the policy provides:

We will pay for damages and claim expense for any covered claim against you alleging a negligent act, error, or omission in your professional services performed on or after the policy date, provided the claim is first made against you during the policy period.

In other words, the work and claim must be presented during the same policy period to trigger coverage (under this policy).  If you did not purchase optional extended coverage from Company A or Company B – you may be left high and dry when you needed insurance the most.

If you have received an initial denial from your insurance carrier, follow these three steps:

  1. Do not panic.  Your request for coverage is not a one-bite-at-the-apple proposition.  The notice of claim may not contain sufficient facts (or urgency) to trigger coverage in the eyes of the initial reviewer.
  2. Stay involved. Do not ignore the claim, your client, or opposing counsel.  Briefly tell them coverage has been denied and you need more time to find personal counsel and respond to the claim.  You can still be proactive by participating in inspections, assembling your documents, and communicating with your client and sub consultants.
  3. Contact your legal counsel. Experienced litigation counsel can not only assist you in preparing for and defending the claim against you but will have knowledge of insurance coverage. Counsel will write a demand letter to your carrier using the “legalease” often necessary to encourage your insurer to take a more serious look at the claim and coverage.
  4. Consider your options.  An insurance policy is a juicy target for claimants.  You may have been sued even if you did nothing wrong; but that does not mean the lack of insurance will make the claim disappear.  If the carrier continues to deny coverage, you should consider whether there is an opportunity to repair the claimed defect or settle the claim out of your own pocket before you incur significant costs and attorney fees defending a matter on principle.  It is a bitter pill to settle for nuisance value, but it is a reality of doing business.  Even your insurance carrier would balance the cost of defending a claim against settlement opportunities.  There is little point in spending $50,000.00 in attorney fees (not to mention the value of your time) for victory in court when you could have ended the litigation for $20,000.00.

If your professional liability insurance was purchased from a “set it and forget it” frame of mind, dust off your policy documents and review your coverage.  If you have – or will – switch carriers during your firm’s operation it is imperative that you compare the old and new policies with an eye toward coverage gaps.

 

Casey Quillen’s firm is a member of the AIATrust Legal Network providing full legal service to design professionals throughout Colorado.  Ruebel & Quillen, LLC now has an office in Steamboat Springs, CO to better serve firms West of the Continental Divide.

 

Ten things architects and engineers should know about P3s

Schinnerer Risk Management Blog

Hand Writing Old Way  and new Way(1) Nomenclature: When you hear “P3” or “PPP” or “public-private partnerships,” substitute “design-build-finance-operate-maintain project delivery.” It’s been used for decades in other parts of the world to deliver public infrastructure (horizontal and vertical) and now governmental entities (federal, state, and local) in the United States have developed a strong interest in institutionalizing this as a new project delivery method to deliver public infrastructure.

(2) New Laws: To gain traction in the U.S. and minimize the political risks for investors, comprehensive enabling legislation has either passed or is being considered across the country. As a design professional, you have a vested interest in influencing how these laws are written and how your services will be procured. You can view a comprehensive webinar on the legislative landscape. Contact your state professional association to explore ways for you (and your profession) to get involved.

(3) New Stand-Alone P3 Agencies are…

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Will New DOL Standards Affect Your Practice?

Clock

The Department of Labor’s (DOL) final overtime rules will become effective December 1, 2016.

The rules increase the minimum salary requirement for “exempt” status employees from $455 per week ($23,660 annually) to approximately $913 per week ($4,476 annually).

What does this mean for architectural firms and their employees? “It depends”, of course.  (You knew a lawyer wouldn’t give you a clear answer right out off the blocks.)

Background:

The Fair Labor Standards Act (FLSA) requires most employers to pay many employees at least the federal minimum wage for each hour worked, as well as overtime pay for time in excess of 40 hours in a workweek.  The FLSA allows for exemptions from minimum wage/overtime requirements for certain “exempt” employees.  These “exempt” employees must meet the minimum salary requirement and the employee’s duties must meet certain criteria as “administrative”, “professional”, “executive”, or “highly compensated” employees.

The criteria defining these four categories of exempt employees can be found here.      Note: The DOL made no changes to the duties test.

Final Rules:

The new rules effective December 1, 2016 may require firms to either re-classify employees or increase their salaries.

Every three years, the DOL will adjust the minimum salary requirement for the exempt employees to maintain it at the 40th percentile of full-time salaried workers in the lowest-wage region.

In addition, the minimum total compensation for the highly compensated employee exemption will increase from $100,000 per year to $134,004 per year on December 1, 2016.

For the first time, employers may use non discretionary bonuses, incentive payments, and commissions to satisfy up to 10 percent of the minimum salary requirement as long as these forms of compensation are paid at least quarterly; at least $913 must be paid on a weekly salary basis.

Recommendations:

Use the next several months to ensure your firm is in compliance.

  • Confirm exempt employees meet applicable exemption tests – both salary and job duties requirements.
  • Identify whether these employees’ salaries fall below $913 per week.
  • If current “exempt” employees fall below the new salary requirements you will generally either have to:
    • Raise their salaries to the new requirement; or
    • Reclassify the employee to an hourly employee and pay overtime whenever they work more than 40 hours in a workweek.

If exempt employees do not meet the new salary requirement and do not regularly work more than 40 hours per week you can simply re-classify them.  If these employees regularly work more than 40 hours per week and you want to keep the compensation costs the same, you will need to account for the overtime premium when you reclassify them as non-exempt.  Calculate the employee’s hourly wage using this formula:

[weekly salary]

________________________________    = $ New Hourly Rate

[40 hours + (avg. # overtime hours x 1.5)

Also, keep in mind that non-exempt employees must be paid for travel and training time.

For more information, contact an attorney or review the final rules at: https://www.dol.gov/whd/overtime/final2016/overtime-factsheet.htm