2011 Professional Risk Symposium: EPL, E&O and Fiduciary THE CHANGING LIABILITY LANDSCAPE FOR DESIGN PROFESSIONALS Chicago, IL ~ March 24 & 25, 2011

THE CHANGING LIABILITY LANDSCAPE FOR DESIGN PROFESSIONALS Moderator: Christopher Calnon, Vice President, A&E Product Manager, ACE USA Panelists: Marty Andrejko, CPG, CRIS, National Underwriting Director, Zurich Ira Chilton, NCARB, Chief Development Officer, ProjX Brian K. Stewart, Esq., Partner, Collins Collins Muir & Stewart LLP Kenneth J. Wittman, Senior Vice President, Dealey, Renton & Associates

Agenda Sustainable Design & LEED Indemnification & Case Law Integrated Project Delivery Closing Thoughts Questions

Sustainable Design & Leadership in Energy and Environmental Design

What is driving the Sustainable Designs Increased Momentum? ECONOMY: Non-renewable resources more expensive SOCIAL: Movements for environmental consciousness CONSERVATION: Energy; water; and materials GOVERNMENT: Job Creation; balance of trade

Why Designers of the Built Environment are Engaged? ECONOMY: A demand has been created for sustainability & IPD SOCIAL: Study state economy is desired in the developed nations CONSERVATION: Reduction, reuse, & recycling of the natural resources GOVERNMENT: Mandates drive requirements for contracts

How is the building environment being impacted? ECONOMY: A demand for durability; interactivity; & technological efficiency. SOCIAL: A measurable matrix is desired for sustainability improvements CONSERVATION: A measurable matrix is desired for conservation GOVERNMENT: Mandates attached to existing matrix certifications

Why is GBC (LEED) as an existing matrix certifier problematic? ECONOMY: The marketplace is responding independently of the GBC SOCIAL: The GBC LEED process is being challenged as an administrative encumbrance & unnecessary expense CONSERVATION: The growth and need for commissioning & IPD GOVERNMENT: Still mandating LEED

Gifford v. USGBC October 2010 – Suit filed in Federal Court in New York. Filed as class action – alleged that the USGBC is fraudulently misleading consumers concerning efficient design in LEED certified buildings. Suit predicated on a 2008 study by New Buildings Institute and USGBC.

Gifford v. USGBC No longer a class action Plaintiffs are now three engineers and an architect Still alleges USGBC making false claims concerning LEED certification and efficiency Seeks permanent injunctive relief to stop USGBC from claims of higher energy efficiency with LEED certified buildings USGBC has a monopoly with LEED

Gifford v. USGBC Also seeks to recover DAMAGES =USGBC profit from alleged unlawful conduct + fees and costs Although no longer a class action, it is still a direct attack on USGBC and LEED USGBC response is due by April 7 th, Stay tuned…

Sustainable Design Risk Management and Insurance Issues Changing Scope of service and standard of care Potential for change orders and extras DP exposed to liability for failed owner expectations of energy efficient and savings Potential conflicts in codes and standards Scope to include achievement of a LEED Certification….over promise/under deliver No apparent coverage issues…yet…except warranties and guarantees

Indemnification: Crawford vs. Weathershild UDC vs. CH2Mill

CALIFORNIA INDEMNITY – CATCHING A REAL GNARLY WAVE! RECENT CASE LAW WITH POTENTIAL TO SPREAD BAD FACTS = BAD LAW CONTRACTUAL LIABLITY CREATES COVERAGE MESS THE ECONOMY AND TRENDS

Crawford v. Weather Shield (2008) 44 Cal.4 th 541 Weather Shield (WS) supplied windows to Developer (DEV) for a residential project Contract between WS and DEV required WS to defend and indemnify DEV for all claims... growing out of WSs scope of work. Construction defect lawsuit filed by 220 homeowners DEV sought contractual indemnity from WS

Crawford - Continued Jury found WS was NOT negligent Court still ordered WS to pay defense costs CA Supreme Court case Court found WS had an immediate duty to defend Defense was independent of the duty to indemnify Many thought Crawford only applied to contractors/suppliers

UDC - Universal Development v. CH2M Hill (2010) 181 Cal.App.4 th 10 Condo Project CH2M-Hill (ENG) provided engineering services BAD Contract language ENG to indemnify and defend Owner against any suit, action or demand brought on any claim or demand herein. Owner sued by homeowners and tendered to ENG for defense and indemnity ENG found NOT negligent at trial BUT court ordered ENG to pay $550K regardless!

CHM2-HILL - continued CH2M-HILL holdings: A promise to indemnify implicitly embraces the cost of defense (unless a contrary intention appears - See CA Civil Code 2778) Duty to defend is separate from the obligation to indemnify and a finding of negligence is not required! Duty to defend necessarily arises as soon as the claims are made

Indemnities Risk Management and Insurance Issues Defense obligation not insured Corporate obligation with a long tail Increased risk for M & A Significant exposure for large firms With one exception, underwriters are not willing to insure the exposure Not just a California problem

Integrated Project Deliver (IDP)

Integrated Project Delivery (IPD) …is a project delivery approach that integrates people, systems, business structures and practices into a process that collaboratively harnesses the talents and insights of all participants to optimize project results, increase value to the owner, reduce waste, and maximize efficiency through all phases of design fabrication, and construction. Source: Integrated Project Delivery: A Guide (2007, AIA and AIA California Council)

IPD vs. Traditional Project Delivery Teams: Integrated vs. Fragmented Process: Shared vs. Siloed Risk: Shared vs Transferred Compensation: Team vs Individual Technology: BIM vs CAD Agreements: Collaborative vs Unilateral.… Adapted from: Integrated Project Delivery: A Guide (2007, AIA and AIA California Council)

IPD Contractual Principles Parties are equals Shared risk/reweard Liability waivers Fiscal transparency Early involvement Intensified design Jointly developed project criteria Collaborative decision-making Source: Integrated Project Delivery for Public and Private Owners (2010, NASFA, COAA, APPA, AGC, and AIA)

IPD Behavioral Principles Mutual respect and trust Willingness to collaborate Open communication Source: Integrated Project Delivery for Public and Private Owners (2010, NASFA, COAA, APPA, AGC, and AIA)

Integrated Project Delivery Risk Management and Insurance Issues Single Purpose Entity? Multi-party agreement Significant contract liability vs. insurance coverage issues Blurred roles and responsibilities Customized program for each project PL insurers generally not creating solutions Wrap-up program may be the best answer Post IPD agreement liability management

Closing Thoughts

Questions?

THE CHANGING LIABILITY LANDSCAPE FOR DESIGN PROFESSIONALS Moderator: Christopher Calnon, Vice President, A&E Product Manager, ACE USA Panelists: Marty Andrejko, CPG, CRIS, National Underwriting Director, Zurich Ira Chilton, NCARB, Chief Development Officer, ProjX Brian K. Stewart, Esq., Partner, Collins Collins Muir & Stewart LLP Kenneth J. Wittman, Senior Vice President, Dealey, Renton & Associates