Introduction

The following material is provided by Singer Nelson Charlmers for informational purposes only. Before taking any action that could have legal or other important consequences, speak with a qualified professional who can provide guidance that considers your own unique circumstances.

With a slowdown in domestic design and construction, an increasing number of architects and engineers are looking overseas for potential projects. Many are finding that operating in a foreign country presents both exciting opportunities and daunting challenges. In addition to facing language barriers, unfamiliar customs and extensive travel, A/E firms are also discovering that foreign countries can have dramatically different laws and regulations applied to their professional work. One of the most disconcerting issues when it comes to overseas risk is so-called "decennial liability."

What Is Decennial Liability?

Simply put, decennial liability is akin to strict liability that is applied to construction projects in certain foreign countries. As the name implies, this liability typically lasts for at least ten years (in some cases up to 13 years) after project completion and approval by or delivery to the owner. Decennial liability applies to any party considered a "builder of the work," which includes contractors, architects, engineers and other professionals who contract with the building owner to work on the project.

Essentially, any builder of the work is strictly liable to the project owner for defects that can threaten the stability of a structure and safety of its inhabitants, leading to partial or complete collapse. This defect can be in the design or construction of the building itself or even in the soil upon which the building sits. The financial liability extends to the amount necessary to compensate the building owner to correct the defect and/or repair the collapse.

The differences between professional liability and decennial liability are dramatic. First, with professional liability, a design firm is liable only for its own negligence, errors and omissions, or the negligence, errors or omissions of a subconsultant hired by the design firm. However, because decennial liability is a strict liability, no negligence, error or omission need be shown. A design professional can be held liable even if the building design proves to be flawless.

Also, with professional liability, a design firm is typically liable proportionately for damages caused by its negligent actions. With decennial liability, each builder of the work jointly shares its liability with all others. In other words, you can be held liable for a structural flaw even if it can be proved that the problem was caused solely by the contractor.

Where Does It Apply?

The roots of decennial liability lie in French Civil Code. Today, however, it is applied well beyond the borders of France, including in some of the most active construction markets around the globe.

Decennial liability is imposed elsewhere in Europe and Asia and is particularly prevalent in the Middle East. Countries such as Saudi Arabia, Egypt, Kuwait, Iraq, Jordan, Bahrain, Oman and Qatar impose this form of strict liability. It is also used in the United Arab Emirates (UAE), which includes Abu Dhabi, Dubai, Sharjah, Ajman, Umm al-Quwain, Ras al-Khaimah and Fujairah. Other locales worldwide that are civil code jurisdictions may also impose decennial liability.

What Are the Ground Rules?

Certainly, it would be impossible to cover all of the details of decennial liability in this short article. Plus, each country that uses this code of law can have its own unique rules and applications. Regardless, here are a few factors to be aware of:

• You can't eliminate decennial liability through contracts with either the owner or your subconsultants. Nor does an owner's verbal or written approval of the project eliminate liability. Regardless of what your agreement with the owner says, you are still strictly liable for structural and soil defects that could threaten stability and safety of a building.
• You are not liable if a building collapse is caused by a natural disaster such as a major earthquake. While this force majeure (also known as "act of god") liability exclusion provides some relief, it is open to interpretation. Plus, in some countries, the burden of proof is placed on the builder of the work to establish that the building collapse was caused by a force majeure.
• The building owner has up to three years after the discovery of the defect to file a claim. Thus, if the discovery is made at the end of the 10-year liability period, a design firm can be sued up to 13 years after project completion.
• If an architect's scope of services is limited to drafting plans only and does not include construction observation or administration services then liability may be limited to errors and omissions in the plans themselves. This is another area where the extent of liability can be a gray area depending upon the interpretation of an architect's consulting versus supervisory role.
• If a structure has a life cycle of fewer than 10 years, then the decennial liability applies to the duration of the life cycle.
• In many countries, there is little precedent regarding decennial liability claims. Fortunately, claims have been relatively rare. But that means there is little certainty as to how any case might be resolved.

What Are the Insurance Issues?

Decennial liability insurance, a form of products/completed operations insurance, is not currently available directly from domestic insurance carriers in the U.S. Coverage to limit the liability must typically be provided through a "fronting" arrangement between an international insurance company that operates in the U.S. and an in-country insurance company. Most policies are project specific.

In both France and Egypt, decennial liability insurance is required and, while often expensive, can usually be obtained. Such is not necessarily the case in much of the Middle East. There, decennial liability insurance may or may not be mandatory and directly obtaining affordable coverage is not always easy to do.

In some countries, decennial liability insurance is readily available only to the project owner and/or contractor. Frequently, the policy must be managed through a third-party consultant who must review the design and construction work and approve the completed project in order for coverage to be put in force.

While professional liability insurance is highly recommended (and sometimes mandatory) for architects and engineers practicing in these foreign countries, it does not adequately cover decennial liability. First, the limits of professional liability insurance are rarely adequate to make the project owner whole in the event of a building collapse. Second, and more important, professional liability coverage comes into effect only when it has been shown that the design firm was negligent in performing its professional services. Decennial liability is not based on negligence and therefore all or portions of a claim may not be covered. (Note: Just recently, some professional liability insurers began offering endorsements that may provide additional but not total coverage for decennial liability claims.)

Recommendations

There is only one foolproof way to avoid decennial liability: don't perform work in countries that impose it. However, that doesn't mean that design firms can't take on projects in these countries. It simply means that architects and engineers must be extremely diligent and fully aware of the risks and rewards such work entails. Here are a few suggestions:

Learn about the foreign country.

Educate yourself on the country in question and the rules and regulations under which you must operate. In particular, examine the country's specific decennial liability laws to determine your exposures. Remember, regardless of what your contract says, you probably can't limit the extent of your liability in the event of a structural failure.

Valuable sources of information regarding a foreign country's laws and economic climate include the U.S. Department of Commerce, the U.S. Department of the Treasury, the U.S. Department of State, the National Trade Data Bank, the Export-Import Bank of the United States, the Overseas Private Investment Corporation (OPIC), the Federation Internationale des Ingenieurs-Conseils (FIDIC), and both the ACEC's and AIA's International Committees.
Choose your client and project carefully. Check the client's history regarding litigation, troubled projects and relationships with foreign designers. Choose project types with which you have ample expertise and a long history of claims-free experience. Avoid fast-track projects or other unfamiliar project delivery methods. Get references from the contractor and schedule a lengthy meeting to judge trust and compatibility. Make certain the land underneath and surrounding the project site has been thoroughly examined and shows no signs or history of instability.

Draft a solid contract.

If your attorney is not familiar with the laws, rules and regulations in the foreign country, you will likely need outside help from in-country attorneys and accountants. Make sure that your contract with your client provides you with appropriate protection and will be enforceable overseas. You will also need to make sure you have all the appropriate permits and licenses to legally conduct business.

Team up with a foreign partner.

It is often recommended, and in some countries mandatory, to form a joint venture with a consulting firm in the foreign country. Many design firms entering into their first foreign project find it prudent to provide schematic design work only and team with an in-country consulting firm who provides the working drawings and construction phase services. The in-country consultant should also sign and seal all documents. This can limit your decennial liability until you are confident and experienced enough to offer a fuller scope of design services.

Weigh your insurance options.

As an A/E insurance specialist, we can search for an insurer who has worldwide resources, offers worldwide coverage, and has experience with the rules and regulations within the country in question. Be aware, however, that we may not be able to directly provide all of your requested insurance coverages due to unavailability and to licensing restrictions abroad.
We can help you determine whether affordable decennial liability insurance is available through a fronting arrangement with an in-country insurer. If not, perhaps you can negotiate an agreement in which the project owner or contractor secures the necessary coverage as part of the cost of the project.

We can also help you understand your other overseas insurance needs. We can help you find an appropriate professional liability carrier who has the right or even the duty to provide defense counsel in the foreign country in the event of a claim. Auto and employers liability may need to be purchased in-country. Overseas package products that include auto, property, workers compensation (or comparable) and general liability may also be available. Kidnap and ransom insurance may be recommended in some locales. While we can't eliminate all of your risks, we can help make them manageable.

Can We Be of Assistance?

We may be able to help you by providing referrals to consultants, and by providing guidance relative to insurance issues, and even to certain preventives, from construction observation through the development and application of sound human resources management policies and procedures. Please call on us for assistance. Singer Nelson Charlmers is a member of the Professional Liability Agents Network (PLAN). We're here to help.

Learn more about The Total Protection Program® and The HealthPlan Optimizer™, provided exclusively by Singer Nelson Charlmers.

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Challenge Your Health Insurance Broker

By asking your current broker these three questions, you will know if it's time for a Singer Nelson Charlmers broker upgrade:

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Call us today, do not wait until your renewal is upon you! In your personal meeting, you will learn about the technologies and services you have been missing. Experience time with us and you'll quickly learn why you should upgrade to the Singer Nelson Charlmers and The HealthPlan Optimizer®!

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• Optimize Your Law Firm's Professional Liabilty Insurance!

Managing a law firm's business insurance can't be business as usual. The new legal environment demands that your broker be as cutting edge as you are in your practice area. As law firm specialists, we help managing partners spend less time on their business insurance and cut their costs by 15 - 30%. Utilizing The Total Protection Program® for Law Firms, managing partners sleep better at night knowing they have the right coverage at the right price. Don't let your insurance programs be a donation to insurance company profits and don't let your insurance program have gaps that can ruin your firm.

Challenge Your Professional Liability Broker

By asking your current broker these four questions, you know if it's time for a Singer Nelson Charlmers broker upgrade:

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   CONSIDER: Would anyone hire you to advise in an area you don't' specialize in?
   
   
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   CONSIDER: Why are you not talking with Singer Nelson Charlmers today?
   
   

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Call us today! In your personal meeting, you will learn the 10.5 most common mistakes law firms make in their insurance programs. Experience time with us and you'll quickly learn why you should upgrade to the Singer Nelson Charlmers Total Protection Program®!

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Introduction

The following material is provided by Singer Nelson Charlmers for informational purposes only. Before taking any action that could have legal or other important consequences, speak with a qualified professional who can provide guidance that considers your own unique circumstances.

Client Contracts

Contracts drafted by your clients typically contain detailed and oftentimes confusing insurance requirements. Specifications regarding the types and limits of coverage you must carry, as well as special amendments and conditions, can be extensive. To make sense of and meet these requirements, you'll need a basic understanding of the various types of policies and coverages your clients are likely to ask for. You'll also need to know what each standard policy insures and what extra coverages can be obtained through amendments - known as "endorsements" - if needed.

As a design professional, you must be prepared to protest impossible or ambiguous insurance requirements in client-written contracts. Often, a client will ask you to provide the types of coverages they routinely get from their contractors. These coverages can be difficult or impossible for a design firm to obtain and may not provide the protection your client is looking for. As an A/E/E insurance specialist, we can assist you in educating your clients regarding appropriate insurance coverages for design firms and negotiating reasonable coverages and rates on your behalf.

You also need to consider the types of insurance coverages you should demand from your clients. Again, we can help you identify the types of insurance coverages you should require before accepting a new project.

Contractual Insurance Requirements

Take the initiative when dealing with insurance requirements of a new client or project. Offer your client an insurance agreement in simple, straightforward language that says you will attempt to maintain appropriate insurance with adequate limits of coverage and provide evidence of such insurance. A certificate of insurance is a short form document that informs your client or other parties of the coverages you have in place. You might also list your current coverages on an addendum attached to your contract.

Notice we recommended a qualifying statement in your contract that states you will attempt to maintain insurance coverage throughout the time of your. It is not recommended that you promise to obtain and maintain certain coverages and limits since you may not be able to keep that promise.

Now let's examine some specific insurance coverages. The coverages and limits you'll need will vary depending upon your unique situation and client demands.

Professional Liability Insurance

Most client insurance requirements begin with professional liability coverage. Professional liability insurance protects designers from claims arising from negligent acts, errors or omissions allegedly committed in the performance of their professional services. Professional liability policies have several unique features that both you and your clients should be aware of:

• Policies are written on a claims-made or a claims-made and reported policy form. Both of these policies cover claims made against a design firm during the policy period and require that the claims be reported to the insurance carrier in accordance with policy terms. To be covered, such claims must have arisen from acts, errors or omissions occurring after the retroactive date stated in the policy.
• The retroactive date is the earliest date for which coverage is in effect under your current PL policy. This date typically corresponds to the date from which you have maintained continuous PL coverage, regardless of whether you have changed insurance companies over that period. It is important to note that if you go uninsured for a period of time and then get a new PL policy, you could lose coverage for all of your acts prior to the new policy's inception date.
• Professional liability policies have annual aggregate limits. That means the yearly policy limit purchased is the total amount the insurer will pay for all defense costs and indemnity payments regardless of the number of claims made during the policy period. Some policies have a per-claim or occurrence limit as well.
• In most states, professional liability policies are expense within the limits policies.  This means that after you meet your deductible, any additional defense costs paid by your insurer will decrease the policy limits available for payment of that claim or other claims.

Be aware that clients often confuse professional liability insurance with general liability insurance. Thus, they may try to insist that you have the same coverage and stipulations they require of their contractors. For example a client may demand that they be included as an "additional insured" on your professional liability policy. This cannot be done for a number of reasons, including the fact that the client is not a licensed design professional.

Best Course of Action

What is the best course of action if your client insists that you guarantee to maintain a certain level of professional liability coverage for an extended time? As stated earlier, because of the volatility of the insurance market, it is best not to provide such guarantees. Instead consider offering a contractual clause wherein you agree to attempt to maintain professional liability coverage for the period of design and construction of the project, and for a short period following substantial completion, if such coverage is reasonably available at commercially affordable premiums. You might want to go further and define "reasonably available" and "commercially affordable" to mean that more than half the consultants practicing the same professional discipline in the state where the project is located obtain such coverage.

Commercial General Liability

Another frequently required type of insurance is commercial general liability (also called comprehensive general liability, CGL, or public liability). This coverage insures your firm against liability claims for bodily injury and property damage arising out of your business operations, including personal and advertising injury and medical payments. For example, this policy provides coverage should a visitor slip and fall while visiting your offices.

Many coverage amendments, or endorsements, that cannot be added to your professional liability policy can be provided under your general liability policy. You might be able to provide your clients with endorsements (such as a "waiver of subrogation" or "named additional insureds") they believe will give them additional protection under your policies,

General liability insurance is sometimes combined with property insurance (covering furniture, fixtures and real property) in what is called an "office package policy." Such packages often include additional coverage for valuable papers and other exposures common to a professional practice. An office package policy often represents an economical form of coverage for smaller firms with standard insurance needs.

Workers Compensation

Workers compensation is a no-fault insurance that protects employers and employees when workers are injured, become ill or are killed on the job as a direct result of their employment. Workers compensation insurance is paid for by the employer and provides benefits for medical costs and lost wages. Although workers compensation insurance is required by statute in every state, client contracts often require proof that the design firm carries such coverage.

Clients may ask that endorsements they typically require of their contractors be added to your workers compensation policy. Availability of endorsements such as "waiver of subrogation" and "additional named insureds" varies from state to state and insurance carrier to carrier. We can help you educate your client regarding such endorsements and negotiate contract language that provides appropriate coverages that are available from your insurer.

Automobile Liability

Clients often require evidence of automobile liability insurance, whether or not you are likely to use vehicles on the project. If you have a business automobile insurance policy, this requirement can be met by providing certificates of insurance. However, if employees drive and insure their personal automobiles, you may face a problem. Private passenger auto insurance companies will not likely issue certificates of insurance or name a client as an additional insured.

Non-Owned Automobile Liability

A client may impose a contract requirement to provide evidence of non-owned and hired auto coverage. This is insurance you would carry for automobiles your firm does not own-- such as employees' cars used on company business. This type of insurance provides liability coverage for your firm above and beyond the primary limits carried by the car owner. This coverage often is attached to a firm's owned automobile policy or its office package policy. In some states, you may be required to obtain a freestanding non-owned auto policy.

Foreign Projects Coverage

Many insurance policies provide coverage only in the United States (and perhaps U.S. territories, Puerto Rico and Canada). If a project is in a foreign country where coverage is not provided under your existing policies, separate foreign coverage insurance may be needed for workers compensation, general liability and/or automobile liability. Professional liability policies often provide or can be endorsed to provide international or worldwide coverage.

Projects in countries with decennial liability, a form of strict liability originating from the French Civil Code that doesn't require proof of negligence, are uniquely challenging. Check with us before undertaking any foreign project.

Owner Insurance Provisions to Contracts

Since clients require verification of insurance coverage maintained by design firms, it's only fair that architects and engineers receive similar verification of the insurance their clients are maintaining, as well as the coverage secured by the contractor. Work with your attorney to develop a list of insurance coverages such as the following:

• The client should maintain comprehensive general liability insurance providing coverage for bodily injury, property damage and personal injury for the owner's liability. Such coverage should include contractual liability, personal injury liability and advertising liability. The client should include you and your subconsultants as additional insureds under this GL policy.
• The client should maintain owners and contractors protective liability insurance during the course of the project. The client should include you and your subconsultants as additional insureds under this policy.
• The client should maintain workers compensation insurance for its employees, including employers' liability coverage.
• The client should maintain builders risk insurance on the project with limits adequate for the project value.
• The contractor should be required to maintain contractor's comprehensive general liability insurance with the client and all design professionals named as additional insureds. The contractor should also be required to provide certificates of insurance to all parties.

Conclusion

It is crucial to review and negotiate the insurance terms of any contract entered into with a client. Don't hesitate to specify the coverages you expect the client, contractors and other parties to secure in order to provide all parties with proper protection. We can be a valuable business partner when negotiating contacts and obtaining needed coverage.

Can We Be of Assistance?

We may be able to help you by providing referrals to consultants, and by providing guidance relative to insurance issues, and even to certain preventives, from construction observation through the development and application of sound human resources management policies and procedures. Please call on us for assistance. Singer Nelson Charlmers is a member of the Professional Liability Agents Network (PLAN). We're here to help.

Learn more about The Total Protection Program® and The HealthPlan Optimizer™, provided exclusively by Singer Nelson Charlmers.

Introduction
Unfortunately just saying it does not make it so.  In today's litigious society design professionals are often sued for things that they have no control over.  The economy being what it is doesn't help either.  Claim frequency trends north when the economy goes south.  When people need money where do they go?  Why, to the deepest pockets of course! (much to the chagrin of the insurance companies).  While there is little or nothing that you can do to prevent frivolous lawsuits, there is something you can do to prevent real lawsuits.  Educate yourselves.  Here are some of the most common problem areas that you and your firm can avoid.

Client Selection
Those of you that only work with government agencies can sit this one out.  For the rest of you, do you know who it is that you are dealing with?  Doing quasi-background checks is key to eliminating some of the risks involved in your projects.  It is amazing what you can find on the internet.  All you have to do is enter your prospective client's name in a search engine and hit the enter button and see what comes up.  Have they recently gone to court to sue another design professional?  Did they just lay-off 50% of their work force?  Has there been a restructuring of the organization recently? These are things that you can probably find within 10 minutes on the internet.  Ask some of your peers if they have ever worked with your prospective client.  You may find out that they are prone to filing lawsuits, or to not paying on time (or at all).  Run a Dun & Bradstreet report.  Make sure they are as financially sound as they say they are.

New Projects/Questionable Projects
Now is not the time to start taking on work in fields that you have no experience in.  Again, because of the economy, any little thing that goes wrong can potentially snowball into a lawsuit looking for that deep pocket.  There are a large number of claims that involve schools, universities, churches, medical facilities, and condos/co-ops/apartment buildings.  If you do not specialize in those areas now, do not take on jobs in these areas.  If you already have a specialty in these areas be aware of what it is you are getting into.  What is the reward relative to the risk you will be taking on?  Proper contracts can go a long way to helping you stay out of trouble.  Your employees also go a long way to helping you stay out of trouble.  Unfortunately some of you have had to let some employees go.  While it is never easy to let go of employees, it is even less easy knowing that there is a shortage of talent in the design professional industry.  Know the capabilities of your current team (pared down or not).  It is ok to pass on work that you know you cannot complete without breaking the figurative and physical bank.  It is much more expensive, both in the short and long term, to get involved in a big claim than it would have been to just take a pass.

Contracts
Any advice given here does not pertain to public sector contracts.  Public sector contracts are take them or leave them, and most firms take them.  And while that is not ideal, it is the nature of that particular beast.  There are many pitfalls involving poorly worded contracts.  Is the scope of services clearly stated?  Are there unrealistic expectations regarding schedules and fees?  Are the indemnification clauses mutual?  Do warranties and guarantees exist which would not be covered under a professional liability policy?  Is the standard of care attainable?  Is there a mediation provision?  Is there a limitation of liability provision? A contract should be in place prior to initial work. Client-authored forms, especially, should be reviewed by your counsel and insurance agent in order to detect any onerous language like assumption of liability as well as any insurability issues.  Contracts with subcontractors should also be maintained and reviewed in the same fashion. 

Communication/Documentation
The title just about speaks for itself.  Clear, concise and frequent communication between all parties involved is imperative to the success of any project.  Client expectations have to be managed and that simply cannot be done without proper communication.  Poorly defined staff responsibilities and scope of services are some of the biggest causes for the elevation of issues.  Avoid the types of claims alleging misrepresentation, negligence, or misconduct by simply communicating more clearly and more frequently.  Most importantly, document any and all forms of communication so as to avoid mysterious "lapses in memory".  There is an old joke about lawsuits: the person with the most paper usually wins.  Live by those words.  Also, don't write anything in internal memos or e-mails about anyone else that you wouldn't say to their face.  You would be very surprised what comes up during discovery.  There is a whole industry that is devoted to the field of electronic discovery.  It is their job to find all electronic files that pertain to a specific case during the period of discovery.  Think about that the next time you want to send an e-mail to a coworker telling him/her what a pain in the neck your client is.  Just because you delete an e-mail doesn't mean that it disappears into an electronic blackhole.

Trust Your Instincts
The first time you even suspect a problem might become a claim get the insurance company involved.  Insurance company studies have shown that the earlier the insurance company gets involved the less likely the problem is to become a claim.  Don't worry about loss preventions (pre-claims assistance) increasing the price of your liability insurance.  In general, pre-claims assistance does not affect the price you pay for your liability insurance and the assistance is generally free.  Most, if not all, insurance companies want to get involved from the beginning.  Just remember, however much you pay for your professional liability insurance, the insurance company has more skin in the game than you do.  They will fight hard to keep their money in their pocket.

While there is no magic bullet that will make all claims disappear, following the simple steps that have been outlined here will get you well on your way to a more claims free life.  After all, the cost of insurance is much more than what you pay for your actual policy.  Frequent and/or severe claims will cost you in ways that you may never have thought about.  Such as: money in the form of lost opportunity costs and deductibles as well as future increases in both the price of your liability policy and future deductibles as well as an overall loss of  morale, and of course time away from doing what you love most.  If you arm yourself with proper education and safeguards you will ultimately reduce the total cost of your insurance.  And who couldn't use a little extra money these days?

About the Author
Joshua Lluch is a Business Development Manager for Singer Nelson Charlmers and specializes in Insurance for Engineers.

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