AAP Parter Matt Cano's presentation for the 2015 Construction Law Conference.

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ARCHITECT/ENGINEER DEFENSE IN
PRACTICE
Matthew B. Cano
Will W. Allensworth
Allensworth & Porter, LLP
100 Congress Avenue, Suite 700
Austin, TX 78701
CONSTRUCTION LAW FOUNDATION OF TEXAS
28th Annual Construction Law Conference

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Unique Defensive Issues for
Design Professional Litigation
CERTIFICATE OF MERIT
• Must be filed by “the plaintiff” initiating an action
• Not required to be filed by Third-Party Plaintiff or
Cross-Claimant
• Not be required to be filed by Counter-Claimant
• ENGlobal U.S., Inc. v. Jefferson Refinery, L.L.C.

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CONS
• Owner sues . . .
– Design/Builder or General Contractor sues…
• Engineering sub-consultant
• No protection for engineer from Chapter 150
• Frustrates “manifest object of Chapter 150”
being “prima facie showing of liability at the
time” engineer is sued
Unique Defensive Issues for
Design Professional Litigation
JASTER V. COMET II., INC.

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PROS
• Owner sues…
– Architect sues…
• Engineering sub-consultant
• Architect does not need COM
• Architect does not need prove Plaintiff’s case
Unique Defensive Issues for
Design Professional Litigation
JASTER V. COMET II., INC.

5. 5
PROS (CONT.)
• Negligence based claim against design
professional still requires expert testimony
regarding the standard of care and breach
– Prellwitz v Cromwell, Truempler, Levy, Parker and
Woodsmale, Inc., 802 S.W.2d 316 (Tex. App. – Dallas 1990).
Unique Defensive Issues for
Design Professional Litigation
JASTER V. COMET II., INC.

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DEALING WITH DESIGN PROFESSIONALS
• Smaller shops can take claim
very personally
• Strategy of filing against DP
individually
– Sensitive
– Can backfire and poison a case
Unique Defensive Issues for
Design Professional Litigation

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DEALING WITH DESIGN PROFESSIONALS
• Design firms are not heavily capitalized
• Cannot ordinarily satisfy significant
judgments
Unique Defensive Issues for
Design Professional Litigation

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Unique Defensive Issues for
Design Professional Litigation
DEALING WITH DESIGN PROFESSIONALS
Where insurance will satisfy
claim:

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EFFECT OF ULTIMATE FACT
FINDING OF LIABILITY
• Judgment can have wide ranging implications
• Even a “win” can be a loss from standpoint
of client
• Potential effect on future work
Unique Defensive Issues for
Design Professional Litigation

10. Unique Defensive Issues for
Design Professional Litigation
10
ULTIMATE FACT
FINDING OF LIABILITY
Design professionals often respond to
broad disclosure requests

11. Unique Defensive Issues for
Design Professional Litigation
11
RFQ DISCLOSURE

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• Claim can relate to ongoing project – even one in early
stages
• DP may have interest in ongoing relationship with
claimant
• Claimants use this to their advantage
• May have payment claim by DP and claim for breach of
contract by owner all wrapped up in one
Unique Defensive Issues for
Design Professional Litigation
CONTINUING RELATIONSHIPS CAN
AFFECT CASE

13. Unique Defensive Issues for
Design Professional Litigation
13
ECONOMIC LOSS RULE
LAN/STV v. Martin K. Eby Const. Co., Inc.
– “[W]hether the [economic loss rule] permits a general
contractor to recover the increased costs of performing its
construction contract with the owner in a tort action against
the project architect for negligent misrepresentations—
errors—in the plans and specifications.”

14. Unique Defensive Issues for
Design Professional Litigation
14
ECONOMIC LOSS RULE
• DART hires contractor (Eby)
• DART hires architect (LAN/STV)
• Eby allegedly suffers $14M in damages
• Alleges that plans are full of errors
• Eby sues LAN/STV for negligent misrepresentation
• Trial Court renders judgment of $2.25M for Eby against
LAN/STV

15. Unique Defensive Issues for
Design Professional Litigation
15
ECONOMIC LOSS RULE
• Supreme Court rejects Restatement’s application of
negligent misrepresentation
• “We think . . . that a contractor will assume it must look
to its agreement with the owner for damages if the
project is not as represented or for any other breach.”

16. Unique Defensive Issues for
Design Professional Litigation
16
ECONOMIC LOSS RULE
WHEN DESIGN DAMAGES OTHER PROPERTY
• Espey Huston & Assocs., Inc.
– Engineer designed drainage system
– Drainage issues allegedly caused cracked walls, doors not
fitting, mildew, etc.

17. Unique Defensive Issues for
Design Professional Litigation
17
ESPEY (CONT.)
“to the extent that the alleged inadequacies [in the
drainage design] caused the damage to parts of the
property beyond [the engineer’s] contract,” plaintiff
can sue in tort

18. Unique Defensive Issues for
Design Professional Litigation
18
PUGH V. GENERAL TERRAZZO
SUPPLIES, INC.
• Pughs hire Westbrook (GC)
• Westbrook hires RBS (EIFS installer)
• General Terrazzo is EIFS supplier (and maybe
supervised some installation)
• No privity between Pughs and General Terrazzo
• Pughs sue General Terrazzo for negligence

19. Unique Defensive Issues for
Design Professional Litigation
19
PUGH DAMAGES
• Due to EIFS installation:
– Lack of drainage and venting;
– Moisture penetrated EIFS system;
– Decayed wood framing, water damage, and mold;
– Warping in hardwood flooring

20. Unique Defensive Issues for
Design Professional Litigation
20
PUGH (CONT.)
• Court holds ELR bars negligence claims
• “[A]lthough the Pughs were not in privity with
General Terrazzo, their economic losses were the
subject matter of their contract with Westbrook [GC]”
• Court treated “damages to [the Pughs’ entire] home”
as though it were products liability case

21. Unique Defensive Issues for
Design Professional Litigation
21
ESPEY
PROJECT DAMAGES
PUGH
PROJECT DAMAGES
NEGLIGENCE NO NEGLIGENCE
DEFENDANT’S
SCOPE
NO NEGLIGENCE
DEFENDANT’S
SCOPE
NO NEGLIGENCE

22. Architects’ and Engineers’
professional liability insurance
PROFESSIONAL
LIABILITY POLICIES
What do they cover?
22

23. Architects’ and Engineers’
professional liability insurance
PROFESSIONAL
LIABILITY POLICIES
23

24. Architects’ and Engineers’
professional liability insurance
TYPICAL
EXCLUSIONS
24

25. Architects’ and Engineers’
professional liability insurance
TYPICAL
EXCLUSIONS
25

26. Architects’ and Engineers’
professional liability insurance
REDUCING LIMITS
26

27. Architects’ and Engineers’
professional liability insurance
27
REDUCING LIMITS
• Expenses reduce coverage
• Stowers issues
• Discovery issues

28. Architects’ and Engineers’
professional liability insurance
28
REDUCING LIMITS

29. Architects’ and Engineers’
professional liability insurance
29
STOWERS IN PRACTICE
• Effective Stowers demand:
– Must be reasonable
– Must be within policy limits
• Because policy erodes, “policy limits”
decreases with defense expenses

30. Architects’ and Engineers’
professional liability insurance
30
EFFECTIVE STOWERS DEMAND
• Demand settlement in the amount of
remaining policy limits
• Minus amount needed to complete settlement
documents
• But won’t plaintiff need to know what remains
on policy?

31. Architects’ and Engineers’
professional liability insurance
31
DISCOVERY ISSUES - IN RE DANA CORP.
• Court concluded that TRCP 192.3(f) neither
prohibited nor required discovery of more
than existence of insurance agreement and its
contents
• May not be able to discover amount of limits
expended on defense

32. Architects’ and Engineers’
professional liability insurance
32
SELECTION OF COUNSEL
• Some carriers allow selection
• Most have panel counsel
• May depend upon deductible and ROR
issues

33. Architects’ and Engineers’
professional liability insurance
33
DEDUCTIBLES
• Generally spent first -
unless have Dollar One Defense
• May have Mediation Credit
• May have other credit if no litigation or
settle within X time of claim being made

34. Architects’ and Engineers’
professional liability insurance
34
CLAIMS-MADE
POLICIES

35. Architects’ and Engineers’
professional liability insurance
35
CHECK THE
RETROACTIVE DATE!

36. Architects’ and Engineers’
professional liability insurance
36
STRATEGY IMPLICATIONS –
DROPPING NEGLIGENCE
• Breach of Contract allegation covered if
pled as breach based upon failure to
perform in accordance with the
professional standard of care

37. Architects’ and Engineers’
professional liability insurance
37
JURY CHARGE FOR BREACH OF K
• “Did Don Davis fail to comply with the
agreement?”

38. Architects’ and Engineers’
professional liability insurance
38
JURY CHARGE K DAMAGES
• “What sum of money, if any, if paid now
in cash, would fairly and reasonably
compensate Paul Payne for his damages,
if any, that resulted from such failure to
comply?

39. Architects’ and Engineers’
professional liability insurance
39
COMPARATIVE FAULT IN CONTRACT?
• No, per Hunt v. Ellisor & Tanner, Inc.
• Architect tried to have comparative
responsibility of general contractor
submitted to jury on breach of contract
claim by owner against architect
• Court of Appeals said no comparative
fault for breach

40. Architects’ and Engineers’
professional liability insurance
40
COMPARATIVE FAULT IN CONTRACT?
• Should still have valid argument about
what damages, if any, “resulted from”,
the breach of contract by design
professional.

41. Architects’ and Engineers’
professional liability insurance
41
CONSENT OF INSURED
• Must not only convince carrier but also
must convince design professional or firm
• Design professional may have other
motives

42. Architects’ and Engineers’
professional liability insurance
42
CONSENT OF
THE INSURED --
EFFECT

43. Architects’ and Engineers’
professional liability insurance
43
EFFECT OF SETTLEMENT ON PREMIUMS
• Settlements may affect premiums, but so
does the cost of claim
• Large settlements affect insurability
• May have some difficulty if firm has
several claims