CYBER SECURITY INSURANCE AND DESIGN PROFESSIONALS

shutterstock_553414534Cyber security insurance is a relatively new insurance product that has probably become more popular and important in today’s digital age.  Think about it.  Almost everything is created, transmitted, shared, and stored digitally.  Companies utilize cloud-based platforms to store documents, share documents, and transmit documents.  Documents are transmitted via e-mail. Documents are created electronically with various software programs.   And, finally, technology has made it convenient to create, access, store, share, and transmit documentation digitally through smartphones, tablets, or laptops (and various applications) – so technology enables things to be done remotely in the moment to maximize efficiency and production. 

 

I recently did a presentation relating to design professional’s liability exposure in today’s digital age that includes more collaborative and sophisticated project delivery methods.  One of the topics mentioned was, of course, cyber security insurance as a means to insure an important risk for design professionals (particularly, engineering and architectural firms).  Depending on the insurer, cyber security insurance can be added as an endorsement to a professional liability / errors and omissions policy.

 

From a design professional’s standpoint, there are numerous reasons to consider this insurance based on how documentation is created, stored, and transmitted and it is an insurance product that should NOT be overlooked:

 

  • Losses due to the mismanagement or failure to protect confidential business information and proprietary information the design professional receives;

 

  • Losses due to inadvertently transmitting malware (a virus) through digital transmission;

 

  • Data breaches (or theft) and the losses and costs associated with such breaches including the response, restoration, and remediation of the breach (which can be costly); and

 

  • Losses due to violating any laws/regulations relating to a data breach.

 

Notably, cyber security insurance is becoming an important insurance product for many, many industries.  Design Professionals, for purposes of this article, would be remiss not to explore and seriously consider cyber security insurance in today’s digital age.  As a design professional, consult your insurance broker as there are insurers that are insuring this important risk based on your business’ needs.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

EVOLVING PROJECT DELIVERY METHODS AND RISK CONCERNS FROM A DESIGN PROFESSIONAL’S STANDPOINT

I recently posted a presentation I put on regarding project delivery methods.  In that presentation I discussed evolving project delivery methods such as Integrated Project Delivery and Public-Private-Partnerships and even sustainability / green building as a focus of certain delivery methods.   I also discussed how BIM (building information modeling) and emerging, collaborative technology is utilized during the course of construction.

 

With evolving delivery methods (and the use of emerging technology) comes RISK concerns and issues that are different than the risk concerns and issues with more conventional project delivery methods.  Below is a portion of a presentation I did addressing risk concerns and issues from a design professional’s standpoint, with the focus on evolving project delivery methods and emerging technology such as BIM. 

 

Download (PDF, 3.38MB)

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

A DESIGN PROFESSIONAL OR ARCHITECT’S COPYRIGHT INFRINGEMENT CLAIM…DON’T THINK SO…

imagesA design professional or architectural firm has an uphill battle proving a copyright infringement claim.   Why? Because it is hard…very hard…for a design firm to show that another’s design is substantially similar to their original copyrighted design to warrant a finding of copyright infringement.

 

This uphill burden has been reaffirmed by the Northern District of Florida in Home Design Services, Inc. v. Turner Heritage Homes, Inc., 2015 WL 1482301 (N.D.Fla. 2015).  In this case, a residential design was copyrighted. The design firm that owned the copyright for the residential design sued a homebuilder for copyright infringement alleging that the homebuilder built 165 custom homes based on the design firm’s copyrighted design.  The jury returned a jury verdict in favor of the design firm for copyright infringement; however, the trial court entered judgment for the homebuilder finding that the design firm failed to prove a copyright infringement claim.  That’s right—the jury returned a verdict finding copyright infringement and the trial court entered a judgment for the homebuilder notwithstanding the verdict.

 

A leading issue in this case was whether the design firm’s copyrighted design was an original design and whether there were differences between the copyrighted design and the homebuilder’s allegedly infringing design.  The reason being is that in order to prove a copyright infringement claim of an architectural design:

 

For copyright infringement, a plaintiff must prove: (1) ownership of a valid copyright, and (2) copying of protectable elements. In order to establish ownership of a valid copyright, the plaintiff must prove, among other things, that the work is original.  Original, as the term is used in copyright, means only that the work was independently created by the author (as opposed to copied from other works), and that it possesses at least some minimal degree of creativity. To establish copying, the plaintiff must show as a factual matter that the defendant copied the protected work, and, as a mixed question of law and fact, that the protected expression itself was copied. In the absence of direct proof of copying, a plaintiff may prove copying by demonstrating that the defendants had access to the copyrighted work and that the works are substantially similar. To show access, the plaintiff need not prove actual viewing and knowledge but simply a reasonable opportunity to view the work.  The test for substantial similarity for architectural works is whether a reasonable jury could find the competing designs substantially similar at the level of protected expression. [S]pacial depictions of rooms, doors, windows, walls, etc. are not protected. [O]nly the original, and thus protected arrangement and coordination of spaces, elements and other staple building components should be compared. Moreover, given the subtle distinction between protected and unprotected expression, the Eleventh Circuit has recognized that judges, rather than juries, are usually better equipped to resolve questions of infringement. The Eleventh Circuit has further instructed that copyright protection in a compilation is thin, and that modest dissimilarities are more significant than they may be in other types of art works.

Home Design Services, supra, at *6.

 

Focusing on whether the design firm’s copyrighted design was substantially similar to the homebuilder’s home design, the trial court found dissimilarities between the designs including, but not limited to, the porches were different, fireplaces were in different locations, elevations were different, hallways had different dimensions and openings, toilets were positioned differently, the nooks had different windows, master bathrooms contained differences, etc. (you get the point…there were differences).  Although the design differences were slight when comparing architectural designs, the fact remained that there were dissimilarities to preclude a copyright infringement claim.  No matter how modest the dissimilarities truly were, that fact that there were dissimilarities precluded a finding for copyright infringement.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

DESIGN PROFESSIONAL’S DUTY OF CARE NOT EXTENDED TO SUBCONTRACTORS

images3M3BYH2WIn construction defect lawsuits, subcontractors responsible for the alleged deficient work or damage are third-partied into the lawsuit by the general contractor that hired them.  And, sometimes, an owner (or association) tries to assert a claim directly against responsible subcontractors.   There are times where subcontractors have the defense that the deficiencies and damages complained of are the result of design errors and omissions.  A question becomes whether a subcontractor can assert a negligence claim directly against that design professional as a way to flow any potential exposure to the design professional.

 

Unfortunately, there is case law that says that a supervising design professional does NOT owe any duty of care to a subcontractorSee Spancrete, Inc. v. Ronald E. Frazier & Associates, P.A., 630 So.2d 1197 (Fla. 3d DCA 1994) (duty of care that supervising architect owed to general contractor did not extend to subcontractors); McElvy, Jennewein, Stefany, Howard, Inc. v. Arlington Electric, Inc., 582 So.2d 47 (Fla. 2d DCA 1991) (trial court erred in allowing case to go to jury because architect’s duty of care could not have been extended to subcontractors); E.C. Goldman, Inc. v. A/R/C Associates, Inc., 543 So.2d 1268 (Fla. 5th DCA 1989) (consulting engineering/expert firm hired by owner to inspect and advise owner about roof owed no duty of care to roofing subcontractor).  Without this duty of care, a subcontractor would NOT be able to pursue a negligence claim against the design professional because this duty of care is the very first element required to prove a negligence claim.  (In order to prove a negligence claim, a plaintiff needs to prove that 1) the defendant owed the plaintiff a duty of care, 2) the defendant breached that duty of care, 3) that breach proximately caused damages/injuries to the plaintiff, and 4) the plaintiff was damaged/injured.)  This does mean the subcontractor cannot assert the design professional’s errors and omissions as a defense, it just means that it will be an uphill battle for a subcontractor to assert an affirmative claim against the design professional.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

LIEN RIGHTS FOR PROFESSIONAL (DESIGN) SERVICES

imagesDesign professionals  (e.g., architect, engineer, interior designer, surveyor, and mapper) have lien rights for professional services they perform under Florida’s Lien Law.

 

 

Florida Statute s. 713.03 governs liens for professional services and provides:

 

(1) Any person who performs services as architect, landscape architect, interior designer, engineer, or surveyor and mapper, subject to compliance with and the limitations imposed by this part, has a lien on the real property improved for any money that is owing to him or her for his or her services used in connection with improving the real property or for his or her services in supervising any portion of the work of improving the real property, rendered in accordance with his or her contract and with the direct contract.

 

(2) Any architect, landscape architect, interior designer, engineer, or surveyor and mapper who has a direct contract and who in the practice of his or her profession shall perform services, by himself or herself or others, in connection with a specific parcel of real property and subject to said compliances and limitations, shall have a lien upon such real property for the money owing to him or her for his or her professional services, regardless of whether such real property is actually improved.

 

 

This statutory language is important to the design professional.  Paragraph 1 says that a design professional shall have lien rights for their professional services rendered pursuant to their contract and the direct contract (or contract with the owner of the real property, typically the owner-architect contract in the design-bid-build scenario) in connection with improving the real property.  This would be the paragraph relied on by design professionals NOT in privity of contract with the owner.  On the other hand, Paragraph 2 would apply to design professionals that enter into a direct contract with the owner of the real property for professional services (such as the architect in the design-bid-build scenario).  Under this paragraph, the design professional has lien rights for their professional services regardless of whether the real property is even improved.  This means that the owner can decide not to use the professional services (the design) or abandon the project and the design professional in direct contract with the owner has lien rights even though the real property has not been improved.   Now, if a design professional enters into a contract with a developer or person that never had an interest in the real property, the design professional is not going to be able to use this statute to create lien rights because it never entered into a contract with the actual owner of the real property.  See Grossman v.  Pollack, 100 So.2d 660 (Fla. 3d DCA 1958) (finding that architect could not enforce lien for leasehold interest that never came into being because there was no privity between architect or anyone with interest in the real property).

 

Design professionals have flexibility preserving lien rights since they do not have to comply with all of the technical requirements that a general contractor, subcontractor, or supplier must comply with.  Design professionals do NOT need to serve a Notice to Owner (within 45 days of initial furnishing) unlike the supplier or subcontractor not in privity of contract with the owner.  And, the design professional in privity of contract with the owner does NOT need to serve a contractor’s final payment affidavit (at least 5 days before filing a lawsuit) unlike the contractor hired directly by the owner.   The ONLY thing the design professional needs to do to secure its lien rights is to record a lien within 90 days of its final furnishing of professional services (and serving a copy of the lien on the owner).

 

 

images-1The downside, however, is that a design professional’s lien maintains a priority standpoint from the date the lien is recorded.  So, anything that is recorded before the design professional’s lien will be superior to the lien.  This is different than a lien recorded by a general contractor, subcontractor, or supplier in that their lien relates back to an effective notice of commencement, which is important from a lien priority standpoint.

 

For example, let’s assume there is a new construction project.  The owner obtains financing and a mortgage securing the construction loan is recorded.  This mortgage should have superior priority to any other encumbrance on the property (if not, lenders would never lend money!).  After the mortgage is recorded, and before construction commences, a notice of commencement is recorded (which lasts for 1 year unless a different expiration date is specified; although, the notice of commencement can be amended).  Within the effective period of the notice of commencement, the structural engineer records a lien; the next day the architect records a lien.  Months later, and within the effective period of the notice of commencement, the framing subcontractor records a lien.  What is the priority of these liens? The framing subcontractor’s lien will have priority because it will relate back to the notice of commencement.  Then, the structural engineer’s lien will have priority over the architect’s lien because it was recorded the day before the architect’s lien.  Remember, design professional’s liens do not relate back to the notice of commencement and their priority is dictated as of the date/time they are recorded. Any other contractor or supplier that records a lien within the effective notice of commencement will have priority over the design professional’s lien since these liens will relate back to the earlier recorded notice of commencement.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

DESIGN PROFESSIONAL’S STANDARD OF CARE AND THE FIRST COST DEFENSE

imagesCAH5G0ZTDesign professionals entering into contracts need to absolutely understand the standard of care they are agreeing to in the contract. The reason being is that a design professional can agree to a heightened standard of care making them contractually liable for breaches based on an ultra-technical standard of care that cannot realistically be met.

 

Typically, the standard of care of a design professional is: “[P]rofessionals rendering professional services are to perform such services in accordance with the standard of care used by similar professionals in the community under similar circumstances.” Trikon Sunrise Assocs., LLC v. Brice Bldg. Co., 41 So.3d 315, 318 (Fla. 4th DCA 2010). Yet, “if the professional contracts to perform duties beyond those required by ordinary standards of care, the quality of that performance must comport with the contractual terms.” CH2M Hill Se., Inc. v. Pinellas County, 698 So.2d 1238, 1240 (Fla. 2d DCA 1997).

 

The School Board of Broward County, Florida v. Pierce Goodwin Alexander & Linville, 39 Fla. L. Weekly D590a (Fla. 4th DCA 2014), is a new case that discusses the significance of the standard of care the architect agrees to in conjunction with another concept known as “the first cost” defense. Both the standard of care and the first cost defense are terms and concepts that design professionals need to be familiar with!

 

imagesCAOQQVFHIn this case, the architect was retained to design changes to existing buildings and design new buildings for a public school. The public owner retained the services of a separate peer reviewer to monitor and offer opinions on the design. The architect’s initial phase was to prepare preliminary designs for bidding purposes. The peer reviewer commented on the design including that a third floor balcony needed a staircase as an emergency fire exit in order to be code-compliant. The architect disagreed and suggested an alternate fire code solution. The architect thought that the public owner, which had final authority to determine the correct interpretation of the code, orally agreed with its alternate solution and the plans were submitted for bidding.

 

After construction commenced, the public owner determined that the architect’s alternate solution was not code-compliant and that the staircase suggested by the peer reviewer needed to be constructed. This resulted in a revision to the plans and a significant change order. As with any change order, this change resulted in the owner paying more for the construction. Other change orders due to design changes also increased construction costs. The public owner sued the architect to recoup these costs.

 

Two important issues were raised. The first issue was the appropriate standard of care of the architect–did the architect breach its standard of care by preparing a design that required changes to make it code-compliant. The second issue is the defense known as the first cost defense, meaning that the architect is not responsible for the costs of items left out of its original design since the owner should always be responsible for that cost based on the cost of that item if that item were included in the original design. If the cost of that item (i.e., steel or concrete) increased from the time of the original design, then the architect could be responsible only for the price increase (but not the cost of the item at the time of its original design). Or, if the omission of that item resulted in a delay, the architect could be responsible for the delay.

 

1) Standard of Care

 

The architect in this case wanted the typical standard of care jury instruction that would state that the architect is liable if it failed to perform services in accordance with the standard of care used by similar professionals under similar circumstances. The public owner, however, wanted a breach of contract jury instruction that would make the architect liable for breaching a contractual standard of care provision, in this case, for preparing a design that was not code-compliant. The public owner wanted this because this is what the architect agreed to. The contract provided:

 

“2.1.3 As to all services provided to this Agreement, the Project Consultant [the architect] shall furnish services by experienced personnel and under the supervision of experienced professionals licensed in Florida and shall exercise a degree of care and diligence in the performance of these services in accordance with the customary professional standards currently practiced by firms in Florida and in compliance with any and all applicable codes, laws, ordinances, etc. . . .

2.1.5 All professional design services and associated products or instruments of those services provided by the Project Consultant shall: .1 Be in accordance with all applicable codes, laws, and regulations of any governmental entity, including, but not limited to, [list of regulatory entities] with the Owner serving as the interpreter of the intent and meaning of . . . any other applicable code.”
The School Board of Broward County, supra.

 

Thus, the public owner wanted a jury instruction that would render the architect liable if its initial plans were not code compliant because the contract provided that the architect’s standard of care is to ensure its drawings comply with all codes, etc.

 

The Fourth District agreed with the owner and maintained:

 

Where an express provision within a professional services contract provides for a heightened standard of care, however, the professional must perform in accordance with the terms of the contract….In other words, an architect can contractually commit to perform under a standard of care higher than the common law standard.
***
We are satisfied that the parties unambiguously allocated to the architect the risk for costs and expenses attributable to design plans that were not code-compliant.”
The School Board of Broward County, supra.

 

*The lesson is that design professionals need to be careful and truly consider what they agree to as they can impose duties upon themselves that are more stringent than what the law otherwise imposes. This risk needs to be appreciated because more often than not architect / design professional do agree to perform a service (prepare a design) that is code-compliant.

 

2) First Cost Defense

 

Again, under the first cost defense, the architect is not responsible for the costs of items left out of its original design since the owner should always be responsible for that cost based on the cost of that item if that item were included in the original design. As the Fourth District explains:

 

For example, if the school board would have paid a cost for construction in accordance with the code-compliant final design plans, an award of a COI [change order item] expense against the architect attributable to a change in the initial design plans for the same cost would put the school board in a better position than if the design services had been performed as agreed. Stated another way, if there had been no change between the initial plans drawn for bidding by contractors and the final construction plans, the school board would have been solely responsible for paying all construction expenses incurred for the renovation.” The School Board of Broward County, supra.

 

The Fourth District relied on and references a hypothetical stated by the Fifth District in Lochrane Engineering, Inc. v. Willingham Realgrowth Inv. Fund. Ltd., 552 So.2d 228 (Fla. 5th DCA 1989) to explain the first cost defense:

 

“[I]f an engineer negligently designed a 1000 square feet drain field, and it was subsequently determined that an adequate design required a 1200 square feet drain field, the owner, not the engineer, should pay for the additional 200 square feet of drain field because the necessity for the additional 200 square feet of drain field was caused by the owner’s need to dispose of the sewerage produced. However, the court then observed that this does not mean an engineer is never liable for damages that properly flow from his professional negligence. The court went on to say, if the cost of later installing the additional 200 feet of drain field costs more than it would have cost if installed as part of the original undertaking, the engineer would be liable for the difference as well as any other consequential damages. The School Board of Broward County, Florida, supra (internal quotations and citations omitted).

 

*The lesson is that even if an architect erred, the owner cannot obtain a windfall by virtue of that error and be placed in a better position because of that error.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

THE UPHILL BURDEN OF A DESIGN PROFESSIONAL’S COPYRIGHT INFRINGEMENT CLAIM

imagesArchitectural firms hate the idea, as they should, that the creativity embodied in their design concepts could be used by another firm. For this reason, architectural firms sometimes submit their design to the United States Copyright Office to obtain a copyright and are very protective over this design. If the firm gets fired, it does not want another firm to utilize and get credit for a substantially similar design. This makes sense. However, it is very challenging for an architectural firm to establish and prove copyright infringement simply because conceptual components of their copyrighted design were utilized by another architect. The recent Southern District opinion in Sieger Suarez Architectural Partnership v. Arquitectonica International Corp., 2014 WL 585883 (S.D.Fla. 2014), contains a lengthy discussion, a portion of which is reflected below, of what an architect needs to establish and prove to support a copyright infringement claim. Again, it is a challenging burden, to say the least, as exemplified by this opinion in which the plaintiff architect’s copyright infringement claims were dismissed against a defendant architect dealing with the design of a condominium in Miami.

 

In this case, the plaintiff architect was hired in 2000 to design plans for a condominium. The plaintiff completed the plans and obtained a copyright in 2006. Subsequently, the ownership group decided to replace the plaintiff architect and hired the defendant architect. The plaintiff learned that construction of the condominium was underway based on the defendant architect’s plans that plaintiff contended infringed on its copyrighted design (for the same condominium). The plaintiff architect filed this copyright infringement lawsuit and the defendant architect moved to dismiss the complaint.

 

Regarding copyright infringement of architectural works, the Southern District stated:

 

Copyright infringement requires that a plaintiff owned a valid copyright and a defendant copied constituent elements of the work that are original…..[A] plaintiff may establish copying by demonstrating that the defendant had access to plaintiff’s work and that the plaintiff’s and defendant’s works are substantially similar.
***

Architectural works, and other compilations, have ‘specific copyright protection’ in that the copyright protects the exact work itself; only subsequent works which copy the work’s specific expressions and designs will infringe upon that protection. The precise expression in the plan which was submitted to the United States Copyright Office is the work which is protected. However, certain standard elements which do not comprise the expression are not protectable. For example, the Eleventh Circuit has held that there are a finite number of ways buildings such as condominiums, homes, and offices can be arranged and such arrangements are not protectable. This must be the case because, to borrow a phrase used by the Ninth Circuit in a photography case, ‘the range of protectable expression’ is limited by the fact that the work is architectural.

 

 

A plaintiff cannot use copyright to control the right to unoriginal arrangements, and so the protection afforded architectural works must be specific. An architectural copyright is not ‘minimal’ or ‘thin’ because the copyright does protect what it was issued to protect, i.e. the plan submitted to the Copyright Office. A copyright of an architectural work is a full-fledged copyright which protects the specific expression embodied in the plan which was issued a copyright by the Copyright Office.” Sieger Suarez, supra, at *3, *4 (internal quotations omitted).

 

 

Regarding whether architectural works / designs are substantially similar, the Southern District explained:

 

[T]his Court endeavors to illuminate the substantial similarity analysis in architectural copyright infringement actions. Emphasis must be placed on the protectable expression of an idea, not the idea itself. As the Eleventh Circuit has noted, ‘The substantial similarity required for infringement … must be substantial similarity of expression, not substantial similarity of ideas.’
***
Substantial similarity in an architectural work is a high standard; it revolves around the entirety of the specific work embodied in the copyright, but relies on the expression found in specific places, such as:

 

(1) The manner by which a design is achieved

Two distinct architectural designs may create results that are visually similar without one infringing upon the other. A copyright protects the manner by which the end result is created, not the appearance itself. This is the essential distinction in the expression/idea dichotomy. Two works which have similar outward appearances or shapes are not necessarily substantially similar. Indeed, the Eleventh Circuit has ‘caution[ed] trial courts not to be swayed in an infringement action by the fact that two works embody similar or even identical ideas.’ Factors to consider in determining how a design is achieved include if internal or external structures are used, if the structures used to achieve the design are part of the work’s support system or are removable, and the importance of those structures in relation to the work as a whole.

 

 

(2) Use of structures and details
An architectural work’s use of ornamental structures and details is integral to the work’s expression of an idea. Details such as what features adorn the exterior and interior of a work are avenues for an architect to express his vision for the work. These features also make one building distinguishable from another. These details provide the work with elements that others do not have and, thus, tend to establish the specific expression protected by a copyright.

 

 

(3) How an individual interacts with the space
The manner in which an individual interacts with a structure is a product of the copyrighted plans and affects the way a building is used. For example, comparing the use and placement of entrances, walkways, doors, and elevators can reveal important differences in architectural expressions. These features alter how much square footage there is for living space, how an individual relates to a room, and for what purpose the space is used.

 

 

(4) Location

A structure’s location may be more determinative of the arrangement of elements, such as bedrooms, kitchens, and stairways, than an architect’s originality. For example, houses may be arranged in such a way as to have the bedroom windows face the prevailing winds, or particular views for rooms may be favored in certain areas. Thus, the general arrangement of a floor plan, which may be dictated in whole or in part by a structure’s location, is not necessarily protectable. Sieger Suarez, supra, at *5, *6 (internal quotations and citations omitted).

 

 

The Southern District, applying these factors, held that the defendant architect’s design was NOT substantially similar to the plaintiff’s copyrighted design. The Court noted that while the designs were conceptually similar, any relationship between them was purely intellectual, and that certain architectural features such as the number of condominium units per floor, the condominium’s height, and the height of the floor’s ceilings are not protectable under a copyright.

 

While it is still a good idea for architectural firms to submit their design to the United States Copyright Office for copyright purposes, the firm needs to understand that it is a tough burden in actually prevailing on a copyright infringement claim. Perhaps, the architect wants to specifically address this situation in its direct contract with the owner. There are numerous ways this circumstance can be negotiated in the contract, particularly the termination provision, but the fact will remain that the provision would be governed by contract law and not copyright law. On the other hand, if the owner has paid the architect for all of the work / services the architect performed, the owner is going to want certain ownership of the concepts it paid for. And, perhaps, the owner will even agree to indemnify the architect for the utilization of any design concept the architect submitted for the project that the owner uses if it elects to terminate the architect, whether for convenience or for cause.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

THE INCLUSION OF LIMITATION OF LIABILITY PROVISIONS FOR DESIGN PROFESSIONALS

images-1Design professionals need to remember the benefit of newly enacted legislation effective July 2013 that authorizes a limitation of liability provision for design professionals in their individual capacity. Florida Statute s. 558.0035 authorizes a design professional to limit their personal liability if: (a) the professional’s company entered into the contract for professional services; (b) the contract does not name the professional as a party to the contract; (c) the contract provides in uppercase and at least 5 font points larger than the rest of the contract that an employee or agent of the professional’s company cannot be held individually liable in negligence, and (d) the professional’s company maintains professional liability insurance. See Fla. Stat. s. 558.0035 set forth below. Complying with this statute can limit a professional’s liability in an individual capacity for economic damages, although based on the language of the statute, it would not extend to personal injury or property damage not subject to the professional services contract.

 

When negotiating a contract for a design professional, it is good to include a limitation of liability provision to protect professionals working with the design professional company/ entity entering into the contract. I would include a provision identifying that it is specifically understood that employees or agents of the contracting party are not parties to the professional services contract. The reason being is many times professional services contracts will call out the specific professional(s) that is to act as the company’s representative or the professionals that will be performing the professional services. Additionally, I would include in uppercase and 5 font sizes larger than the balance of the text in the contract a provision to the effect: “PURSUANT TO FLORIDA STATUTE S. 558.0035, AN INDIVIDUAL EMPLOYEE OR AGENT OF_______ [CONTRACTING PARTY] MAY NOT BE HELD INDIVIDUALLY LIABLE IN NEGLIGENCE FOR ANY CLAIMS, DAMAGES, OR DISPUTES ARISING OUT OF AND SUBJECT TO THE CONTRACT.”

 

Although the statute provides that the limitation of liability provision does not apply to damages to personal injuries or property not subject to the contract, it does not define the circumstances in which this would apply. For instance, if a structure is deficiently engineered and a portion falls down or collapses and damages persons or property other than the structure itself, it would seem that the limitation of liability provision would not extend to these types of damages since the other property and personal injuries were not subject to the professional services contract. On the other hand, there could be the argument that these damages are subject to the professional services contract because they arose out of errors and omissions in the performance of professional service contractual obligations.

 

When negotiating a contract for an owner, the key is to ensure that the design professional has sufficient professional liability insurance based on the requirements of the project (i.e., sufficient insurance limits and potentially tail / extended reporting period coverage). An owner willing to agree to the limitation of liability provision could put a disclaimer that reflects that should the contracting party not continue its professional liability insurance for “x” years after the project’s completion with a date retroactive to the contract date or purchase tail coverage for the same period of time, the limitation of liability provision shall be deemed null and void.

 

Florida Statute s. 558.0035

(1) A design professional employed by a business entity or an agent of the business entity is not individually liable for damages resulting from negligence occurring within the course and scope of a professional services contract if:
(a) The contract is made between the business entity and a claimant or with another entity for the provision of professional services to the claimant;
(b) The contract does not name as a party to the contract the individual employee or agent who will perform the professional services;
(c) The contract includes a prominent statement, in uppercase font that is at least 5 point sizes larger than the rest of the text, that, pursuant to this section, an individual employee or agent may not be held individually liable for negligence;
(d) The business entity maintains any professional liability insurance required under the contract; and
(e) Any damages are solely economic in nature and the damages do not extend to personal injuries or property not subject to the contract.
(2) As used in this section, the term “business entity” means any corporation, limited liability company, partnership, limited partnership, proprietorship, firm, enterprise, franchise, association, self-employed individual, or trust, whether fictitiously named or not, doing business in this state.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

A GENERAL CONTRACTOR NEEDS TO UNDERSTAND CERTAIN LEGAL DOCTRINES BEFORE SUING A STATE (INCLUDING AGENCY OR SUBDIVISION) AND DESIGN PROFESSIONAL THAT IT DID NOT HIRE

HIGHWAY-CONSTRUCTION-1The recent Florida district court case, Posen Construction, Inc. v. Lee County, et al., 2013 WL 375430 (M.D.Fla. 2013), ruling on various motions to dismiss, is an interesting case that discusses two important doctrines. In this case, a roadway contractor constructing a road project for Lee County sued Lee County and Lee County’s design professionals (hired by the County) for delays and additional costs it incurred in the performance of its work. This case, among other things, discusses a state’s (inclusive of a state agency or subdivision) sovereign immunity for claims for additional work (absent a change order) and the duty of care for purposes of a negligence claim that a design professional owes to a general contractor (when the general contractor did not hire the design professional).

 

The first doctrine is known as the Miorelli doctrine which refers to a state’s (or its agencies or subdivisions) soverign immunity for extra-contractual work claims that arise on a construction project. The Miorelli doctrine is based on the Florida Supreme Court case, County of Brevard v. Miorelli Engineering, Inc., 703 So.2d 1049 (1998). The Miorelli doctrine, as maintained by the Posen court, has evolved into the following doctrine: “A claim for damages predicated on work ‘totally outside the terms of the contract’ is barred by the doctrine of sovereign immunity [unless memorialized in a written executed change order], whereas damages caused by extra work done at the state’s behest and in furtherance of contractual covenants (express or implied) are potentially recoverable.” Posen Construction, supra at *3 citing Miorelli, 703 So.2d at 1051. In applying the Miorelli doctrine, the Posen court expressed:

 

“To be clear, if Posen’s [contractor] claim is predicated on work ‘totally outside the terms of the contract’ it will fail by application of the Miorelli decision. On the other hand, claims for damages caused by additional work performed in furtherance of either express or implied covenants of the written contract  fall within Florida’s implied waiver of sovereign immunity…”

 

If a contractor is suing a state (or a state agency or subdivision) for additional costs that are not memorialized in a written executed change order, it is important that the contractor is aware of the Miorelli doctrine in order to best craft arguments to potentially recover the additional costs. The reason being is that the contractor can almost be certain that the state will raise the Miorelli doctrine through the motion to dismiss and/or summary judgment stages to establish that the state has sovereign immunity for such claims and damages. The key is that the argument should center on the additional costs being covered by the expansive scope of work set forth in the contractor’s contract with the state versus constituting work that is materially different than what the contractor bargained for.

 

The second doctrine is known as the A.R. Moyer doctrine which refers to a design professional’s duty of care to a general contractor on a construction project (when there is no contractual privity between the contractor and design professional). The A.R. Moyer doctrine is based on the Florida Supreme Court case, A.R. Moyer v. Graham, 285 So.2d 397 (Fla. 1973). In A.R. Moyer, a contractor sued a supervising architect in negligence. The Florida Supreme Court in A.R. Moyer maintained:

 

Each of the [following] conditions would present a cause of action [in negligence against a supervising architect or engineer]: (a) supervising architect or engineer is negligent is preparation of plans and specifications; (b) the supervising architect or engineer negligently causes delays in preparation of corrected plans and specifications; (c) the supervising architect or engineer negligently prepared and negligently supervised corrected plans and specifications; (d) the supervising architect or engineer failed to award an architect’s certificate of completion of the project; (e) the architect or engineer was negligent in exercise of supervision and control of contractor…” Posen Construction, supra, citing A.R. Moyer, 285 So.2d at 402.

 

Stated differently, the design professional must have a supervisory role or element of control (also referred to as a close nexus to the contractor) in order for the design professional to owe a legal duty to the contractor. The Posen court clarified that “supervising architects and engineers are liable for the foreseeable injuries to general contractors proximately caused by their negligent conduct even where there is an absence of contractual privity, whereas nonsupervising engineers and architects—irrespective of when they are hired—will not be.” Posen Construction, supra, at *12.

 

If a contractor is suing a design professional in negligence, it is important for the contractor to understand the A.R. Moyer doctrine and that the required legal element of “duty” is based on the supervisory status of the architect or engineer. This will allow the contractor to best phrase legal theories knowing that the design professional will raise this doctrine at the motion to dismiss and/or motion for summary judgment stages. However, absent this supervisory status or close nexus between the design professional and general contractor, the design professional will not be deemed to owe a legal duty to the contractor.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

A CONSULTING ENGINEER / ARCHITECT’S PROTECTION FROM A NEGLIGENCE CLAIM BY A CONTRACTOR

imagesThe case of Recreational Design & Construction, Inc. v. Wiss, Janney Elstner & Associates, Inc., 2011 WL 5117163 (S.D.Fla. 2011), is a recent case discussing whether an independent engineering firm hired as a consultant by an owner can be liable to the general contractor for professional negligence under Florida law.  In this case, the City of North Miami Beach (“City”) hired a contractor to perform all design and construction services for a water slide project (“Contractor”).  The City also hired a separate engineering firm to evaluate and perform inspections of the contractor’s work (“Engineer”).  The engineering firm hired another engineering firm as a subconsultant to perform the engineering inspections (“Subconsultant”).

 

 

The Subconsultant issued a report to the Engineer that was provided to the City explaining that the water slide the Contractor designed and started to construct was structurally unsafe.  The report recommended repairs to be implemented on the slide.  The City rejected the Contractor’s work based on the Subconsultant’s recommendation and required the Contractor to implement the repairs before completing the work.

 

 

The Contractor, instead of suing the City, sued the Engineer and Subconsultant for professional negligence (also known as professional malpractice) to recover its costs in reconstructing the slide and implementing the repairs recommended to the City.  Both the Engineer and Subconsultant moved to dismiss the Contractor’s complaint arguing that they did not owe a duty of care to the Contractor; therefore, they could not be liable in negligence to the Contractor under the law.  The Southern District of Florida agreed with the Engineer and Subconsultant and dismissed the Contractor’s complaint with prejudice.

 

 

In order to be liable for professional negligence, a plaintiff must prove the following elements against the defendant-professional: 1) the defendant owed a duty of care to the plaintiff; 2) the defendant breached its duty of care; and 3) the breach of the duty of care proximately caused damages to the plaintiffSee Recreational Design & Construction, 2011 WL at *2 citing Moransis v. Heathman, 744 So.2d 973, 975 n.3 (Fla. 1999).   The element of duty, however, is a question of law in Florida and must be determined by the court before a negligence case proceeds to the jury or trier of factSee Wallace v. Dean, 3 So.3d 1035, 1046 (Fla. 2009).

 

The Contractor relied on the Florida Supreme Court’s ruling in A.R. Moyer, Inc. v. Graham, 285 So.2d 397 (Fla. 1973), in arguing that the Engineer and Subconsultant owed the Contractor a duty to perform its work and issue recommendations to the City with reasonable care and due diligence.  In A.R. Moyer, the Florida Supreme Court held that a general contractor can maintain a cause of action against a supervising architect for the architect’s negligent performance of a contractual duty (even though the contractor has no contractual privity with the architect).  Particularly, the Florida Supreme Court found that the following circumstances would present a professional negligence cause of action by the contractor against a supervising architect or engineer:

 

“(a) supervising architect or engineer is negligent in preparation of plans and specifications; (b) the supervising architect or engineer negligently causes delays in preparation of corrected plans and specifications; (c) the supervising architect or engineer negligently prepared and negligently supervised corrected plans and specifications; (d) the supervising architect or engineer negligently failed to award an architect’s certificate upon completion of the project; (e) the architect or engineer was negligent in exercise of supervision and control of contractor.”  A.R. Moyer, 285 So.2d at 402.

 

 

Of importance, the “professional defendant [in A.R. Moyer] was an architect whose responsibilities on the relevant project were to prepare the designs and plans for the project, approve the overall structural components or framework for the project, and supervise the general contractor’s execution of those plans, including having the authority to halt the contractor’s work.”   Recreational Design & Construction, 2011 WL at *4.   In other words, A.R. Moyer dealt with more of a traditional architect or engineer that, among other things, served as the architect / engineer-of-record for the project and had detailed contract administration services that enabled them to make decisions that could effect the contractor, which is why the Court described the professional as a supervisory architect or engineer.

 

 

But, in Recreational Design & Construction, the Engineer and Subconsultant, were really nothing more than a consultant providing expert-related services issuing recommendations, advice, or suggestions to the City in which the City could accept or reject.  The Engineer and Subconsultant did not serve as the engineer-of-record.  They did not design the plans for the City’s project. They did not issue specifications for the project.  They were not performing supervision to ensure that the Contractor’s construction complied with their design (since they were not the designer).  And, they did not have authority to halt the construction of the project or issue corrective details directly to the Contractor.  Instead, as previously mentioned, their services were truly within the realm of consulting services in which it was up to the City to determine how it wanted to utilize any suggestions, advice, or recommendations.   For these reasons, and because the role of the Engineer and Subconsultant in this case was substantially different than the role of the architect in A.R. Moyer, the Southern District held they did not owe a duty of care to the Contractor.  See also McElvy, Jennewein, Stefany, Howard, Inc. v. Arlington, Elec., Inc., 582 So.2d 47 (Fla. 2d DCA 1991) (finding that architect did not owe duty to subcontractor because architect was required to issue advice to owner regarding interpretation of architect’s design, but it was the owner responsible for making the ultimate decision based on the advice of the architect).

 

 

An architect or engineer that is serving as the architect / engineer-of-record for a construction project may want to implement certain language in their contract with the owner that while it will render certain advise, recommendations, or suggestions to the owner regarding its design and specifications and interpretations thereof, it is the owner that is required to render the ultimate decision regarding the advice, suggestions, and recommendations.  This way, if the contractor does pursue a professional negligence claim against them, they can argue they were not a supervisory architect or engineer and should not be deemed to owe a duty to the contractor because it was the owner that made the ultimate decision that affected the contractor.

 

 

Also, owners on construction projects sometimes hire other consultants or experts to assist in the construction of their project.  For instance, sometimes owners hire a building envelope consultant or a glazing consultant, etc.  These consultants sometimes worry about the contractor asserting a negligence claim against them based on their advice, suggestions, and recommendations made to the owner.  These consultants, however, should be able to rely on the arguments in Recreational Design & Construction to support they do not owe a duty to the contractor.  These consultants can also employ the same contractual language suggestions above so that their contract specifically expresses that it is the owner that is required to act on the advice, suggestions, and recommendations of the consultant so that it remains understood that the owner, and not the consultant, has ultimate control over the contractor’s work.

 

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.