ASCE Risk Management Resources

Claims Retrospective: Even Providing Limited Professional Engineering Services Can Be Risky

Posted on 12/19/2019 by ASCE Insurance in Claims

We have noticed an increase in claims involving large-scale condominium complex construction projects, particularly in areas of the country that experience inclement weather or natural disasters, such as prolonged sub-zero temperatures, heavy snowfall, hurricanes, and tornadoes.

Engineers are often hired to provide a very limited scope of work on these large-scale condominium construction projects, such as structural calculations for common recreational buildings, pavement plans, site drainage plans, and sound insulation. Engineers often accept modest compensation for these services given that the scope of work is relatively small and, it is assumed, any risk involved in the project is correspondingly low.

However, once these projects are complete and the management of the building or complex is transferred to the unit owners' association, the association often files a lawsuit against every architect, engineer, design professional, contractor, and subcontractor who had any involvement with the project. These often enormous lawsuits, many involving 10-50 parties, allege design and construction defects in the condominium building and/or complex. However, the association often fails to identify which of the purported defects the engineer is liable for or attempts to connect the engineer to areas of the project in which the engineer clearly had no involvement. As a result, engineers are often forced to participate in lengthy, expensive lawsuits, where either there is no liability or the amount for which they could be held liable is very low, usually much less than the cost of defending the litigation.

Unfortunately, it is often very difficult, if not impossible, for the engineer to extricate himself or herself from the larger lawsuit in an economically efficient manner because the association is unwilling to focus its case against the engineer given the limited scope of services. Instead, they prefer to focus on the larger players, often the general contractor, architect, or project manager. While it is generally considered to be positive when the claimant does not focus on the insured engineer in litigation, such is not always the case, especially in a lawsuit with more than 10 defendants. Simply participating in discovery and defending the case can cost more than the damages for which the insured engineer could ever be liable. For example, these cases often result in the engineer paying more than $100,000 to defend a case where the insured engineer is later voluntarily dismissed by the claimant and/or where the most damages the insured engineer can ever be held liable for is less than half the defense fees and costs.

While there are varying tactics the engineer’s defense counsel can use to help extricate the engineer from the morass of these lawsuits, the defense counsel’s efforts are limited by the information and documentation that can be provided by the engineer. In that regard, it is important that the engineer obtain a written contract for services on these projects and the contract clearly outline the scope of the engineer’s services. Without this documentation, the defense counsel’s effort to extricate the engineer from the litigation in its early stages will be nearly impossible, as the association is unlikely to agree that the engineer had nothing or little to do with the alleged defects if there is no documentation. In the absence of a written contract or even in the presence of a vague or ambiguous written contract, it is unlikely the association will agree to dismiss the insured without oral discovery, which can be costly and time-consuming. The association will likely insist on pursuing oral discovery if faced with a motion for summary judgment based on the scope of the engineer’s services when the motion is not supported with a written contract clearly outlining said services.

Furthermore, the engineer may want to consider adding contract terms, such as limitation of liability or indemnification clauses that run in its favor, so he or she can assert such defenses against the party with whom it contracted. Finally, the engineer may want to consider if further compensation may be warranted for services on these types of projects given the prevalence of expensive litigation surrounding them.