Designed to Expose: Beware Lender Certificates

By on August 8, 2018

Danny the Developer wishes to build Greenacre, a large residential and retail condominium complex in downtown Boston. However, Danny’s lender – the Bank of Barbara – will not lend Danny the money to develop the complex unless Danny’s architect signs a lender certificate. Danny presents the lender certificate to Allie the Architect, the certificate is relatively short and simple, it states:

“Allie the Architect prepared plans and specifications relating to Greenacre. Allie the Architect certifies that the plans are in accordance with all applicable zoning, building, housing and other laws, ordinances, regulations including but not limited to the Federal Fair Housing Act, the Uniform Federal Accessibility Standards, and the Americans with Disability Act. The Plans do not encroach over, across or upon any such easements, rights-of-way, or subsurface rights and the like. Allie further certifies that the load bearing capacity of the soil is adequate to support the plans. The Bank of Barbara shall rely upon Allie the Architects certification in loaning money to Danny the Developer for Greenacre.”

Allie the Architect, visualizing the full-scale version of her brilliant design in the heart of Boston’s skyline, eagerly signs the affidavit. Three years later and about halfway through construction, soil movement causes severe cracking in Greenacre’s foundation. It becomes evident that soil conditions of the land are not capable of supporting the original foundation as designed and are not adequate for Greenacre’s long-term support. Repairing and rebuilding the foundation will increase the cost of the project 25% and delay Greenacre’s opening for an additional two-years. Danny the developer, unable to handle the unexpected costs and delayed opening, defaults on his loan with the Bank of Barbara. Subsequently, Danny the Developer and the Bank of Barbara sue Allie the Architect for breach of contract and breach of express warranty. Specifically, the parties allege that Allie the Architect falsely represented in the lender certificate that the soil was adequate to support Greenacre.

Allie the Architect is shocked by the lawsuit and doesn’t understand how she can be liable when she was merely involved in the design of the building itself. She is also shocked when she receives a “Reservation of Rights” letter from her E&O carrier saying that her policy only provides coverage for claims based on negligence, not claims such as those here that are based on breaches of express warranty. This ROR letter explains that if she is found liable for the Lender’s claims, she will be on her own – the insurer will not pay the judgment. When Allie consults a lawyer – something she should have done before signing the lender certificate – she confesses/complains: “I had no knowledge regarding the nuances of the land where Greenacre would rest, I had no involvement in the soil or geotechnical engineering, all information regarding the soil and land was provided to me by Danny the Developer. How is this happening?” The lawyer explains the lender certificate is the root of her liability. The certification Allie signed contained representations as to the soil condition as it existed. Despite having relied on what Danny the Developer told her, Allie opened herself up to liability by signing a document in which she certified/warranted/promised that the soil conditions were adequate to support her design.

Sadly, Allie’s situation is not unique. Many lending agents require design professional to execute certifications like the one described above. These certifications often include representations and warranties that open design professional to exposure and potential liability that would not have existed otherwise.

Essentially, lender certificates give the lender someone to sue if a project goes wrong. Lender certificates are usually proffered as a “mandatory pre-requisite” to a lender’s financing and such certificates offer little to no benefit to the design professional. By signing a lender certificate with such overbroad representation and warranties, a design professional risks becoming a scapegoat for many possible problems. By design, lender certificates create exposure and potential liability—precisely why many are drafted to include broad and overreaching language. Oftentimes lender certificates require a design professional to represent and warrant as to facts and services which are not within their personal knowledge, scope of service, or expertise. In the case of Allie the Architect, the lender certificate included language regarding the adequacy of soil conditions when Allie should not have made any representations based on her own knowledge and expertise.

What are some ways to help minimize risk for design professionals when reviewing and signing lender certificates? In the absence of not signing the certificate entirely (often not an option), design professionals should carefully review any representations and warranties (with their experienced construction lawyer) to ensure the certificate only includes facts that are known to him or her at the time of signing. Additionally, the language of the certificate should only extend to the scope of the design professionals’ services. Further, the design professional should identify any information provided to him or her by a third-party.

Often times design professionals feel as though they have no leverage when asked to sign a lender certificate. A design professional might think “If I do not sign, then the bank simply will not loan my client the money, the project won’t go forward and I won’t earn a fee.” Regardless of whether that is true, a design professional must determine if they feel comfortable taking on a great deal of risk so their client can secure financing. If a design professional feels compelled to sign then they should consider adding a provision to limit liability. For example, “It is understood and agreed that the information contained herein is for the client’s use, without any responsibility or liability of the architect to any lending institution who may rely on the said information in relation to lenders financing of the client’s project.” An indemnification provision can be used to shift liability away from the design professional and avoid future litigation. Another good antidote to an overbroad certificate is to revise the “certifying” language. Instead of saying that the design professional “warrants and certifies” the following facts, the certificate should be revised to state that the design professional “represents upon information and belief” the following facts. Despite any such provisions, the best practice is to have a lawyer review the lender certificate prior to signing as such certificates tend to be a trap for the innocent.

Filed under Design Professionals, Lender Certificates

Illinois Court Clarifies Law Governing Claims for Breach of Implied Warranty of Habitability against Design Professionals, Suppliers, and Subcontractors When Builder or Seller is Insolvent

By and on December 4, 2017
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The Illinois Appellate Court for the First District issued Sienna Court Condominium Ass’n v. Champion Aluminum Corp., clarifying the prior decision Minton v. The Richards Group of Chicago concerning the availability of certain defendants to claims for breaches of implied warranty of habitability. 2017 IL App (1st) 143364 (citing 116 Ill. App. 3d 852 (1983)). The First District considered three consolidated appeals brought by a condominium association seeking damages for defects in the design and construction of a condominium building. 2017 IL App (1st) 143364. Two of the Sienna Court appeals addressed the viability of claims for breach of the implied warranty of habitability against defendants that were not the builder or the seller. Id. at ¶ 48. The First District ruled that a property owner may not assert a claim of breach of implied warranty against design professionals and material suppliers who did not perform construction work. Id. at ¶¶ 66, 69. However, a property owner may assert a claim against a subcontractor of an insolvent developer or general contractor.  Id. at ¶ 81.

The plaintiff, relying upon the First District’s opinion in Minton, asserted that modern Illinois common law is in derogation of the principle that a breach of implied warranty of habitability claim may only to be asserted against a builder or seller. Id. at ¶ 19. The plaintiff argued that the class of defendants liable for breach of implied warranty of habitability was previously expanded by the First District in Minton. Id. (citing 116 Ill. App. 3d 852 (1983)). In Minton, the First District permitted a property owner to proceed against a subcontractor under an implied warranty of habitability theory because the property owner had no other recourse where the builder was insolvent and the defect was caused by the subcontractor. 116 Ill. App. 3d at 855. The Minton court reasoned that the “purpose of the warranty is to protect purchasers” and “an innocent purchaser” without recourse against the “builder-vendor” should be able to look to the subcontractor that performed inadequately. Id. at 854-55.

The plaintiff in Sienna argued that Minton should be applied to permit claims against design professionals and material suppliers where the property owner has no other recourse. 2017 IL App (1st) 143364, ¶ 19. The First District rejected the plaintiff’s arguments and refused to expand the class of defendants subject to a breach of implied warranty of habitability claim. Id. at ¶¶ 68-69. The Court stated that Illinois common law clearly provides that design professionals and suppliers are not subject to claims for implied warranty of habitability where they did not partake in construction. Id. (citing Bd. of Managers of Park Point at Wheeling Condo. Ass’n v. Park Point at Wheeling, LLC, 2015 IL App (1st ) 123452). The First District refused to use the narrow holding in Minton, which provided for a claim against subcontractors, to negate the holding in Park Point that any entity or person that does not take part in construction, including design professionals and material suppliers, cannot be defendants to a property owner’s breach of implied warranty of habitability claim. Id. at ¶¶ 64-69.

Despite finding that subcontractors may be suitable defendants under Minton, the First District clarified the focus for determining when subcontracts are suitable defendants to a claim  for breach of implied warranty of habitability. Id. (citing Minton, 116 Ill. App. 3d 852; 1324 W. Pratt Condo. Ass’n v. Platt Constr. Group, Inc., 2013 IL App (1st) 130744). The court states that the claim in this instance is permissible not because the property owner did not have an alternate method of recourse, but because the builder or seller was insolvent. Id. As a result, in Sienna Court, the availability of recovery from insurers and an escrow fund did not preclude the breach of implied warranty of habitability claim against the subcontractor. Id. at ¶¶ 80-81.

By issuing the Sienna Court opinion, the First District has made clear that it will not deviate from the set limitations on who is an appropriate defendant to a claim for breach of implied warranty of habitability.

Filed under Design Professionals, Subcontractors, Supplier, Warranty

Language in Websites Can Inadvertently Create Legal Exposure for Design Professionals

By on October 16, 2017
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Personal injury plaintiff’s counsel can be crafty if not down-right devious. When a worker dies or sustains a serious injury on a construction site, lawyers who specialize in plaintiff’s personal injury work often swoop in and sue all of the project participants regardless of the participant’s involvement in or responsibility for the accident. These lawyers try to spread as wide a net as possible in order to capture the largest pool of potential contributors. They follow the maxim “shoot first, aim later.” The primary targets in construction accident law suits are usually the general contractor or construction manager – the party who by contract is typically responsible for maintaining site safety. In addition to suing GC’s or CM’s contractually responsible for safety, however, personal injury plaintiff’s counsel do not hesitate to sue design professionals who according to their contracts have no responsibility for safety issues. As most design professionals are aware Standard Form Agreements such as iterations of the AIA Owner/Architect Agreements include unambiguous provisions exempting architects from responsibility for safety. For example, article 3.6.2.2 in the AIA B101 (2007 edition) provides in part:

“The Architect shall not have control over, charge of, or responsibility for the construction means, methods, techniques, sequences or procedures, or for safety precautions and programs in connection with the Work, nor shall the Architect be responsible for the Contractor’s failure to perform the Work in accordance with the requirements of the Contract Documents.” (Emphasis supplied)

This contract clause is extremely important as it can serve as the basis for a dispositive motion and lead to the dismissal of the claim. In order for a plaintiff to prevail against a design professional in a personal injury case (i.e., a negligence claim), the plaintiff must establish that the design professional breached a duty that he/she owed to the plaintiff and that as a result of this breach, the plaintiff was injured. The key to defeating such a negligence claim is to show that the design professional did not owe a duty to the injured plaintiff, for example, to protect the plaintiff from injury. Contract clauses such as 3.6.2.2 above make it clear that – contrary to the plaintiff’s allegations of wrongdoing by the architect – the architect did not owe a duty to the plaintiff to maintain site safety. If the architect has no duty to maintain site safety, the architect can not be accused of “failing” to protect the plaintiff from injury.

This is a potent argument that often prevails but it is not failsafe. Seasoned plaintiff’s counsel understand that regardless of contract language in an Owner/Architect Agreement excepting the architect from responsibility for site safety, that architect by his or her conduct may assume broader responsibilities than are described in the contract. For example, if the architect participates in safety meetings with the contractor or actually directs or controls safety precautions on site, then the protections of clauses such as 3.6.2.2 are undermined if not obliterated. The rationale behind this result is that if an actor assumes by conduct responsibility for an act, that actor has a duty to perform that act reasonably safely – i.e., without negligence. One example of this concept is the person who while walking along a river sees a swimmer in distress and decides to try to rescue him. This Good Samaritan has no duty to save or protect the swimmer and can not be legally liable if they do not attempt a rescue and the swimmer dies. Once the Good Samaritan dives into the water and attempts to rescue the swimmer in distress, however, he assumes a duty to perform the rescue in a safe and reasonable manner. If something goes wrong with the rescue and the Good Samaritan inadvertently injures the swimmer, the Good Samaritan can be legally liable to the now injured swimmer. It doesn’t matter that the swimmer would have died but for the Good Samaritan’s rescue.

Turning back to the scenario of the injured construction worker, if the Owner/Architect Agreement (and/or the other contracts between the project participants) contain clauses such as 3.6.2.2 that make the contractor exclusively responsible for construction means and methods and maintaining site safety, the plaintiff’s counsel will focus her discovery efforts exploring if the design professional actually assumed duties beyond those established in the design professional’s contract. In a recent case I handled, the plaintiff’s counsel was able to support his argument that the design professional assumed responsibility for site safety by examining the design professional’s website. In this particular case an electrical subcontractor sustained significant, disfiguring facial injuries through an electrocution accident. He was injured when he worked on an energized electrical substation. He mistakenly believed that the substation had been de-energized and he failed to test a tie bus before he did his work. Following the accident, the lawyer for the injured worker sued everyone involved in the project including my client, the electrical engineer. By contract, the electrical engineer had no responsibility for maintaining site safety. During the construction phase the electrical engineer had only minimal site responsibilities. At the deposition of the electrical engineer the plaintiff’s counsel attempted to build a case against the electrical engineer by showing that the engineer was part of the “team” of project participants who controlled site safety. In support of this theory, the plaintiff’s counsel showed the electrical engineer a print out of the company’s website. For better or worse, this website included several aspirational statements that touted the firm’s “vision” and “values.” The website included marketing buzz words such as integrity, quality service, teamwork, and innovation. It also included an easily misconstrued statement that the engineer “customize[s]our mechanical and electrical design solutions so our clients can safely perform full maintenance, testing, and capacity expansions without affecting mission critical equipment or business operations.” (Emphasis supplied) During the deposition the plaintiff’s counsel pressed the electrical engineer to admit that the engineer followed these goals on the subject project.  He asked such questions as “Isn’t it fair to say that on this project, consistent with the representations in your website, you customized the electrical design so that the owner could safely construct, maintain and test the substations?” The electrical engineer had a difficult time maneuvering through this conceptual mine field.

In the final analysis, language in a design professional’s website does not establish that design professional’s contractual obligations on a project but it creates enough uncertainty that it may make it difficult for the design professional to have a judge dismiss the plaintiff’s claims through a motion for summary judgment. If a design professional is unable to achieve summary judgment because of language in the design professional’s website, the plaintiff’s counsel has won a major battle. Most significant construction accident/death cases never get to trial. Instead, the defendants remaining in the case after all dispositive motions have been decided typically contribute money to the plaintiff and settle the case rather than risk a greater adverse verdict at trial.

The moral of the story is that design professionals would be well-advised to examine their websites to ensure that they do not contain language that: (1) arguably create duties that go beyond the design professional’s contractual obligations; and (2) could inadvertently prevent that design professional from being dismissed from a law suit.

Filed under Design Professionals

The California Legislature Passes a Bill Limiting Design Professional Defense and Indemnity Obligations

By on May 3, 2017
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On April 28, 2017, the California Legislature passed Senate Bill No. 496, which limits the defense and indemnity obligations of design professionals who enter into contracts to perform design professional services on or after January 1, 2018. Existing law limits design professional defense and indemnity obligations for contracts entered into with public agencies to claims that arise out of, pertain to, or relate to the negligence, recklessness or willful misconduct of the design professional. SB 496 makes these provisions applicable to all contracts entered into for design professional services. According to a bankruptcy attorney the bill also prohibits the cost to defend charged to the design professional from exceeding the design professional’s proportionate percentage of fault, except in the event that one or more defendants is unable to pay its share of defense costs due to bankruptcy or dissolution of its business.

There are two exclusions to the provision which are (1) a contract for design professional services where a project specific general liability policy insures all project participants on a primary basis including all design professionals (which is rare) and (2) a design professional who is a party to a written design-build joint venture agreement.

SB 496 amends Section 2782.8 of the Civil Code. A copy of the bill is available here: https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180SB496.

Filed under Design Professionals, Indemnity

Nevada Department of Transportation (NDOT) is Not a Design Professional for Certificate of Merit Purposes

By on June 6, 2016
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Like many states, Nevada has heightened requirements for actions against design professionals for professional negligence. Commonly known in other jurisdictions as a “certificate of merit”, NRS 11.256 – NRS 11.259 require that a complaint filed against a design professional in the nonresidential construction context be accompanied by an attorney affidavit and an expert report which must include, among other information, a statement from the expert that there is a reasonable basis for filing the action against the design professional. NRS 11.258(3). An initial pleading in an action involving the construction of a non-residential building against a design professional served without the attorney affidavit and expert report required by NRS 11.258 is void ab initio, and the district court does not have discretionary authority to allow the party to amend its pleadings to cure its failure to comply with NRS 11.258. Otak Nev., LLC v. Eighth Judicial Dist. Court of Nev., 260 P.3d 408, 409 (Nev. 2011); Converse Prof’l Grp. v. Eighth Judicial Dist. Court of Nev., 310 P.3d 574, 581 (Nev. 2013).

Typically, the question of whether a party is a design professional and therefore protected by certificate of merit requirements is relatively straightforward as the term is defined in the statutory scheme. “Design professional” means a person who holds a professional license or certificate issued pursuant to chapter 623, 623A or 625 of NRS or a person primarily engaged in the practice of professional engineering, land surveying, architecture or landscape architecture. NRS 11.2565(2)(b).

The Nevada Supreme Court recently issued an opinion in which it was asked to determine whether the Nevada Department of Transportation (“NDOT”) was a design professional under this definition. In State DOT v. Eighth Judicial Dist. Court, 368 P.3d 385, 386 (Nev. 2016), a commercial property tenant sued the property owner, NDOT and the City when water entered the leased property and caused damage. The suit alleged that NDOT was negligent for failure to properly design, construct, maintain and or repair a state highway located adjacent to the flooded property. The property owner cross-claimed against NDOT and the City, asserting claims for negligence and equitable indemnity and implied indemnity. Despite including allegations of design defects, neither the complaint nor the cross-claim were accompanied by an attorney affidavit and expert report pursuant to NRS 11.258.

NDOT moved to dismiss the complaint and cross-claim for failure to comply with NRS 11.258. In its Motion, NDOT argued that it is a design professional because its employees hold professional engineering licenses and it primarily engages in professional engineering. The trial court disagreed and denied NDOT’s Motion. Thereafter, NDOT sought writ relief in which it asked the Supreme Court to decide whether NDOT was a design professional as contemplated by NRS 11.2565(2)(b).

The Nevada Supreme Court held that NDOT was not a design professional for two reasons. First, it found that its employees are not statutorily required to be licensed professional engineers and that it was not “…primarily engaged in the practice of professional engineering….” as contemplated by NRS 11.2565(2)(b). Second, under Nevada law, the term “person” “…does not include a government, governmental agency or political subdivision of a government.” NRS 0.039.

The opinion does not delve into what services NDOT actually provided in this particular situation. However, it is clear from this case that there are circumstances in which an entity that employees design professionals can be sued for design defects that fall outside the protections set forth in NRS 11.256 – NRS 11.259. This issue will undoubtedly be refined as the Nevada Supreme Court is faced with the question of whether a firm is “primarily engaged in the practice of professional engineering” under different circumstances in the future.

Filed under Certificate of Merit, Department of Transportation, Design Professionals

A Beacon in the Darkness: Design Professional Liability Post Beacon

By on December 8, 2015
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We recently authored an article in the December edition of California Buildings News regarding analyzing the true effect on liability for design professionals in the wake of the Beacon design in California. The article can be found here. For further information, please feel free to reach out to the author.

Filed under Design Professionals, Liability

Arizona Court of Appeals Addresses Subsequent Homeowner Negligence Claims (Sullivan II)

By on October 5, 2015
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The Arizona Court of Appeals addressed the question whether a subsequent (i.e., non-original) homeowner may maintain a negligence cause of action against a homebuilder for economic losses arising from latent construction defects unaccompanied by physical injury to persons or other property.

The Court of Appeals in Sullivan v. Pulte Home Corporation, 354 P.3d 424 (July 28, 2015) upheld the dismissal of negligence based claims finding a lack of duty to a subsequent purchaser of a home. This opinion, which is now on appeal to the Arizona Supreme Court, if upheld, will benefit homebuilders, design professionals and contractors in limiting the claims of subsequent purchasers of homes.

History of the Claim

Defendant/Appellee Pulte Home Corporation built homes in a Phoenix hillside community. In 2000, Pulte sold the home at issue in these proceedings to the original homeowners, who, in 2003, sold the property to Plaintiffs/Appellants John and Susan Sullivan. In 2009, the Sullivans discovered problems with the home’s hillside retaining wall. An engineering firm they retained concluded that Pulte had constructed the retaining wall and prepared the home site without proper structural and safety components, including footings, rebar, and adequate drainage and grading. Pulte declined the Sullivans’ request to make repairs.

The Sullivans sued Pulte, alleging eleven separate counts, including several negligence-based claims. Pulte moved to dismiss all counts of the complaint pursuant to Arizona Rule of Civil Procedure 12(b)(6), arguing that the implied warranty claim was barred by the 8 year statute of repose and that the tort claims were impermissible under the economic loss doctrine. The superior court granted Pulte’s motion, and the Sullivans appealed.

This Court affirmed the dismissal of all counts of the Sullivans’ complaint except the negligence claims. Sullivan v. Pulte Home Corp., 231 Ariz. 53, 60 (App. 2012), vacated in part, 232 Ariz. 344, 306 P.3d 1 (2013). The Court held that because the Sullivans were not in privity with Pulte and had no contract with the homebuilder, the economic loss doctrine did not bar their negligence claims. The Arizona Supreme Court vacated the portion of the Court of Appeals opinion discussing the economic loss doctrine, but nevertheless agreed that it did not bar the Sullivans’ negligence claims. Sullivan v. Pulte Home Corp., 232 Ariz. 344, 345-47, ¶¶ 7, 11, 15, 306 P.3d 1, 2-4 (2013) (“Sullivan I”). Sullivan I held that the economic loss doctrine “protects the expectations of contracting parties, but, in the absence of a contract, it does not pose a barrier to tort claims that are otherwise permitted by substantive law.” Id. at 346, ¶ 11, 306 P.3d at 3. Instead, courts must “consider the applicable substantive law to determine if non-contracting parties may recover economic losses in tort.” Id. at 347, ¶ 14, 306 P.3d at 4.

On remand to the superior court, Pulte moved to dismiss the negligence claims pursuant to Rule 12(b)(6), arguing “a homebuilder such as Pulte does not owe a duty of care to a subsequent purchaser (such as plaintiffs) to prevent them from economic harm.” The superior court granted Pulte’s motion, and the Sullivans again timely appealed.

Sullivan II

The Court of Appeals accepted jurisdiction to determine whether a subsequent homeowner could maintain a negligence action against a homebuilder for latent construction defects resulting in purely economic losses.

On appeal, the Sullivans argued that Pulte’s duty arose out of public policy principles based in the municipalities’ building codes, Arizona statutes and the Arizona Administrative Code governing contractors. In determining that neither the Building Code, nor Arizona’s statutory or administrative schemes supported the imposition of a public policy-based duty for purely economic loss, the Court of Appeal found that the codes and statutes did not provide a sufficient basis for holding that homebuilders owe public policy-based tort duties to subsequent homeowners for economic loss. The statutes and codes do not delineate a specific class of persons they seek to protect distinguishable from the public. The Court stated that the governance of licensed contractors has a broad, general purpose: “to protect the public health, safety and welfare by licensing, bonding and regulating contractors engaged in construction,” but because the Sullivans had no contract with Pulte, the regulatory provisions did not support imposing a public policy-based tort duty in favor of subsequent property owners asserting only economic loss. As the Sullivans’ claims did not arise out of personal injury or damage to other property, the Court of Appeals found that there was no duty on the part of Pulte to repair a subsequent purchaser’s retaining wall.

Significance of the Ruling

Although Sullivan II is now on appeal to the Supreme Court of Arizona, the Court of Appeals ruling is certainly a positive step toward limiting the liability of homebuilders, contractors, subcontractors and design professionals for claims by subsequent homeowners. The ruling in Sullivan II, if upheld, will limit the bases that plaintiffs can rely on to create a duty.  The hope is that Arizona courts will continue to be active in limiting the liability of homebuilders, design professionals and contractors.

Filed under Construction Defect, Construction Negligence, Design Professionals, Duty of Care, Privity

Colorado Adopts Notice Rule for Typical Design Professional Claims-Made Insurance Policies

By on July 21, 2015
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Typically, design professionals’ errors and omissions insurance policies are claims-made and reported or claims-made policies. These policies, unlike traditional occurrence policies, provide coverage for claims made and reported during a predetermined period of time. With a claims-made policy, the making of a claim is the condition precedent to coverage under the policy. Claims-made policies provide more certainty to the insurer which translates into lower premiums for the insured.

Recently, the Colorado Supreme Court addressed a question of first impression regarding untimely notice under claims-made policies in Craft v. Phila. Indem. Ins. Co., 343 P.3d 951, 955 (Colo. 2015). Although Craft did not involve design professionals or their insurance policies, the holding is broad enough that it will be applied to design professionals and their insurance policies. The Court concluded the notice rule applies to untimely notice under claims-made policies. Following this ruling, insurers are not required to prove they were prejudiced by untimely notice of claim. Instead, an insurer can deny coverage if a claim is made or reported one day outside the policy period.

Practically, timely reporting of claims and potential claims is important regardless of the type of policy involved. Following Craft, it is even more important that design professionals timely report claims and potential claims. If a claim is not timely reported there is a risk it could fall outside the policy period resulting in loss of coverage that otherwise would have existed if the claim was timely reported.

Filed under Claims-Made Policies, Design Professionals, Errors & Omissions

Oregon Raises the Bar on “Certificates of Merit” for Design Professionals

By on July 9, 2015
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Certificates of merit are intended to prevent frivolous lawsuits. Before a claim can be filed against a design professional, another design professional must certify that the alleged conduct failed to meet the professional standard of care.

A new Oregon statute requires that the certifying design professional have “similar credentials” to the design professional who is being sued. Under Oregon law, a “design professional” includes architects, landscape architects, professional engineers, and professional land surveyors. Previously, the statute was silent as to which design professionals could certify claims against other design professionals. Arguably, the new “similar credentials” requirement means that a licensed architect must support a certificate of merit for a claim against an architect, an engineer for an engineer, and so on.

Further, the statute adds to what must be certified, requiring that the certifying design professional be willing to testify that that the defendant design professional “failed to meet the standard of professional skill and care ordinarily provided by other design professionals with similar credentials, experience and expertise and practicing under the same or similar circumstances.” Oregon SB 383 (emphasis added). The “similar credentials, experience and expertise” is new language added by the statute. This amendment may give rise to new arguments about the adequacy of the plaintiff’s expert’s opinions if offered by a design professional who lacks credentials, experience, or expertise similar to the defendant professional. However, Oregon law does not permit expert discovery. So it is unclear how the “similar credentials” will be tested prior to trial.

The new statute will go into effect January, 2016.

Filed under Credentials, Design Professionals

Mechanic’s Lien Releases, Design Professional Lien Releases, and Stop Notice Releases Now Required to Contain Additional Language in Notary Acknowledgements

By on March 11, 2015
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Under new provisions governing all documents requiring notary acknowledgements (often referred to as “Certificates of Acknowledgement”) in the State of California, the following additional language must be set forth in a box on all forms utilizing a notary’s acknowledgement. Within the context of construction form documents, this requirement specifically applies to Mechanic’s Lien and Design Professional Lien Releases, as well as Releases of Stop Notices.

A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

Your notary should be aware of this new provision, which became effective January 1, 2015.  This new provision is intended to clarify that the notary’s role is only to affirm the identity of the individual signing the document. Care should be taken to avoid using old forms on hand containing notary acknowledgements that do not contain this language.

Filed under Design Professionals, Lien, Notary Acknowledgements, Stop Notice Releases

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