Construction defect litigation claims against design professionals continue to increase, mirroring the growth of construction defect litigation nationwide. Design professionals, including architects and engineers, are often caught at the center of any given dispute because their plans and design decisions are typically the starting point for the construction project. Moreover, the recent trend is to sue, either by direct action or cross-complaint, all subcontractors involved (even tangentially) with the work that gave rise to the alleged defect because the exact cause of property damage is difficult to pinpoint. Often, causation issues cannot be fully developed until expert options are disclosed. Even then, the parties' experts' opinions often conflict. As a result, successful summary judgment motions and other pre-trial victories are challenging. This article discusses this dilemma from a design professional's perspective, and how, through careful contract negotiation and drafting, liability can be minimized, if not eliminated.

Defining The Scope Of Work To Minimize Liability Exposure
A starting point in effective risk management is to clearly delineate the scope of professional services to be rendered. The contract should particularly define the design professional's scope of services. That is, the contract should identify with specificity the services the design professional will perform and what services will not be performed. The contract should also address the design professional's role in determining how the work is performed and its responsibility, if any, for the general contractor's conformance with the contract documents. Defining the design professional's scope of work is the first step in setting boundaries for liability exposure.

For example, an architect or engineer may be asked to provide contract administration services, meaning that he or she would be required to generally oversee construction and keep the owner informed of its progress. (See, e.g., Standard Form of Architect's Services: Design and Contract Administration, AIA Document B141-1997, 2.6.2.1.) Most standard contracts providing for construction administration contain crucial limiting language that the design professional shall "neither have control over or charge of, nor be responsible for, the construction means, methods, techniques, sequences or procedures, or for safety precautions and programs in connection with the Work, since these are solely the Contractor's rights and responsibilities under the Contract Documents." This disclaimer generally is interpreted to mean that the design professional's role during the construction phase is passive; the contractor assumes the primary responsibility for executing the project designs.

Nevertheless, an owner and the design professional often have conflicting views of the design professional's "passive" obligation to observe the progress of construction. In Watson, Watson, Rutland/Architects v. Montgomery County Board of Education (1990) 559 So.2d 168, the Montgomery School Board sued the project architects for breach of contract following roof leaks due to installation of weep holes. At trial, the jury returned the verdict of $24,813.08. On appeal, the architect contended that the exculpatory language contained in its contract with the owner (that it was not responsible for the contractor's failures) absolved it from liability for the contractor's faulty workmanship. The architect contended further that the owner could have requested and paid for continuous on-site inspections, but instead chose to have general observation services. Therefore, imposing liability on the architect under these circumstances would render it a guarantor of the contractor's work. The Alabama Supreme Court rejected the architect's arguments, noting:

The issue here is whether the architect can be held liable for its failure to inspect and to discover the acts or omissions of the contractor or subcontractor's in failing to follow the plans and specifications. Under the terms of the contract, the architect had at least a duty to perform reasonable inspections and the school board had a right to a remedy for any failure to perform that duty. There is no question that the architect performed inspection; the thrust of the school board's argument is that these inspections were not as thorough as the architect agreed they would be.... We conclude that, although the architect had a duty under the contract to inspect, exhaustive, continuous on-site inspections were not required. We also hold, however, that an architect has a legal duty, under such an agreement, to notify the owner of a known defect. Furthermore, an architect cannot close his eyes on the construction site and refuse to engage in any inspection procedure whatsoever and then disclaim liability for construction defects that even the most perfunctory monitoring would have prevented.

This authority underscores the need to carefully enumerate expectation. The contract should specify the frequency of site visits, the intensity level of checking for compliance, and the design professional's duty in the event a defect or noncompliance is discovered (i.e., should he or she direct work to be corrected or merely reported to the owner?). In short, the contract should reflect both parties understanding of the design professional's specific obligations in order to minimize ambiguity and avoid expensive litigation later on.

Third Party Lawsuits
Design professionals are often sued by third parties, such as owners, the general contractor or subcontractors. They can somewhat limit their liability to third parties by including specific exculpatory clauses in the design agreement. For instance, the Standard Form of Agreement Between Owner and Architect with Standard Form of Architect's Services (AIA Document B141-1997) contains the following clause: "Nothing contained in this Agreement shall create a contractual relationship with or cause of action in favor of a third party against either the Owner or Architect." Generally, this language operates to preclude breach of contract claims against design professionals. However, while privity of contract was traditionally a prerequisite for tort recovery, recent cases have expanded the law of negligence to protect an injured party's expectations notwithstanding the lack of contractual privity.

The two leading cases finding liability against a design professional in the absence of contractual privity are United States v. Rogers & Rogers (S.D. Cal. 1958) 161 F.Supp. 132 and A.R. Moyer Inc. v. Graham (Fla. 1973) 285 So.2d 397. Both courts held that the design professional owed a duty of care to a third party contractor. The Moyer court held that a general contractor "who may foreseeably be injured or sustained an economic loss proximately caused by the negligent performance of a contractual duty of an architect, has a cause of action against the alleged negligent architect, notwithstanding the absence of privity." The Rogers court adopted and applied a six part balancing test to determine whether a duty of care is owed: (1) The extent to which the transaction was intended to affect the plaintiff; (2) The foreseeability of harm to the plaintiff; (3) The degree of certainty that the plaintiff suffered injury; (4) The closeness of the connection between defendant's conduct and the injury suffered; (5) The moral blame attached to the defendant's conduct; and (6) The policy of preventing future harm.

This well-recognized test has been followed in most jurisdictions to determine if a professional owes a legal duty to a non-client. Over the years courts have placed significant emphasis on the second factor, the foreseeability of harm, in finding a duty of care. Recent decisions, however, have eschewed this trend, focusing instead on the design professional's contractual and actual scope of work, among other factors.

For example, recently in California an engineer escaped a $6 million property damage claim on the ground that it did not owe either the owner or general contractor a legal duty. (See Weseloh Family Limited Partnership v. K.L. Wessel Construction Co. Inc. et al. (2004) 125 Cal.App.4th 152.) The Weseloh case involved the design and construction of a large Southern California auto dealership, including the retaining walls that stood adjacent to the dealership. The property owner hired a general contractor to construct the dealership facility, and the general contractor hired a specialty retaining wall subcontractor to construct two Keystone retaining walls. In turn, the subcontractor retained an engineer to design the walls. While the engineer did not perform construction work, it provided design services and calculations that it signed and stamped on the subcontractor's behalf. It also inspected and approved the completed walls.

Ultimately, a portion of the retaining walls failed, causing severe damage to the dealership. The failure was allegedly caused by the engineer's erroneous calculations. As a result, both the property owner and the general contractor sued the engineer for professional negligence and related claims. The engineer successfully moved for summary judgment. The trial court concluded that the defendant did not owe a duty of care to either the owner or general contractor.

The appellate court affirmed. The court first recognized the general rule that lack of privity of contract alone is insufficient to preclude a duty of care. A duty of care may exist under the balancing test discussed above. However, the court did not afford particular weight on the foreseeability factor: "True, it is generally foreseeable a design defect could result in the failure of a retaining wall. However, ... [the owner and general contractor] failed to produce evidence showing how and the extent to which their damages were caused by the asserted defects ... [W]e give the factor of foreseeability limited weight." The court also found significant that there was no evidence demonstrating that the engineer's designs were followed without alteration. In other words, the court discounted the foreseeability factor where there was a tenuous causation link.

The appellate court's opinion was based in large part on the fact that the engineer had limited obligations on the project and had only contracted to perform consultation-like duties for the retaining wall subcontractor, the party responsible for the actual construction of the retaining walls. Indeed, the engineer's duties were limited to (1) consulting and rendering opinions; (2) supervising the design work of design engineers, i.e., its own employees; and (3) inspecting of the retaining walls after construction to ensure they complied with the design. The engineer did not supervise construction of the retaining wall and received no compensation from the owner or general contractor. Further, neither the contract nor the services provided by the engineer manifested an intention to benefit the owner or the general contractor.

Although the court held that a negligent misrepresentation claim may have been viable if alleged, this decision exemplifies the importance of professional service agreements and the performance thereof. Statements of intended beneficiaries and exclusion of third party beneficiaries are critical. Again, the design professional's scope of work should be clearly stated in the contract and should expressly exclude supervision of the construction process if that service is not contemplated. Indemnification provisions should be limited and should only apply to the design professional's client. Had the engineer in Weseloh included the owner or general contractor as indemnitees, the court may have reached a different conclusion. Finally, the design professional should also perform his or her services strictly in conformance with the contract. That is, if the engineer is working solely for a subcontractor, then its construction observation reports and other correspondence should be directed only to the subcontractor.

The Standard of Care
If privity of contract and/or a legal duty is established, the next question typically focuses on whether the design professional breached the standard of care. Generally, the standard of care to which the design professional must comply is 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." (See, e.g., EJCDC E-500 Standard Form of Agreement Between Owner and Engineer for Professional Services, 6.01A). With rarer exception, expert testimony is essential to establish that the design professional conduct conforms to the standard of care.

Including additional language disclaiming any warranties is also important. For example, the EJCDC E-500 Standard Form of Agreement Between Owner and Engineer provides: "Engineer makes no warranties, express or implied, under this Agreement or otherwise, in connection with Engineer's services." Most jurisdictions do not impose a strict liability or warranty standard on design professionals. For example, in Swett v. Gribaldo, Jones & Associates (1974) 40 Cal.App.3d 573, the court stated: "Those who sell their services for the guidance of others in their economic, financial and personal affairs are not liable in the absence of negligence or intentional misconduct.... The services of experts are sought because of their special skill.... Those who hire such persons are not justified in expecting infallibility, but can expect only reasonable care and competence. They purchase service, not insurance." A minority view has emerged, however, holding the design professional to an outcome standard that requires the design professional to achieve the understood expectations of the client. For this reason, disclaimer of warranty language may be crucial.

Limiting Damages
A design professional may limit his or her liability by including in their contracts a "limitation of liability" clause, specifying a certain sum or a percentage of the fee as a cap. These clauses are generally strictly interpreted; therefore, the language must be carefully worded. If the amount is too low, it may not be enforced. To the extent possible, the clause should also be sufficiently broad to include all types of claims, including breach of contract, negligence and gross negligence. Please note that such a clause would not apply to third party claims.

Conclusion
As with all professionals, design specialists are at risk of errors and omissions claims given the reality of litigation in the modern age. Although immunity from such claims is unlikely, design professionals can place themselves in a better position to defend such claims by practicing prudent risk management — the professional equivalent to "defensive driving."

This publication has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.