by Shaun Chorney, Student-at-Law
In our previous article, we discussed the general principles involved in determining when architects and
engineers can be held personally liable for mistakes in design. This article
will expand on the theme of personal liability in design by focusing on
specific strategies which can reduce exposure to personal liability.
The most common cause of action which
retains a realistic likelihood of success in a claim against individual design
professionals is the tort of negligent misrepresentation. This article will
focus on reducing exposure to this particular cause of action.
Strategies to Reduce Exposure to Personal Liability
There are several strategies that
architects and engineers can implement to reduce personal exposure to liability
for negligent misrepresentation, including the use of reliance disclaimers, qualifying
designs, contractual provisions limiting employee liability, defining the
standard of care, and liability insurance. These strategies are not exhaustive and
are in no particular order.
Reliance Disclaimers
To successfully prove negligent
misrepresentation, one of the elements that a plaintiff must demonstrate is
that they reasonably relied on the representations of the defendant. A reliance
disclaimer seeks to limit liability by constraining the entities that are
permitted to rely on the representations of the representor. Reliance
disclaimers are often included with the design materials. An effective
disclaimer should stipulate that the materials have been prepared for a
specific party, and only that specific party is permitted to rely on the
materials; it should also indicate that all excluded parties assume all risk
associated with the unauthorized use of the design materials.
Provided that the reliance limitation is
unambiguous, Courts have repeatedly found that these disclaimers are valid and will
defeat the claims of parties that have been excluded from relying on the design
materials. These disclaimers can protect both the design firm and the
individual architects or engineers.
Qualification of Designs
Similar to a reliance disclaimer,
liability exposure can be reduced by qualifying the design. Any undetermined
variables which may affect the design should be identified and stated as such
in the design materials. An example of a commonly unknown variable that can
substantially affect the implementation of a building design is subsurface
conditions. The materials should indicate the evidence and assumptions that the
designs are predicated on; the materials should also indicate that actual
conditions may differ and materially affect the construction of the design. Qualification
of designs can reduce liability exposure for both the design firm and its
employees, and it can protect against the claims of the contracting party and
third-parties.
Limitation of Liability
Design firms can use contractual
provisions to shield both the firm and their employees from claims of parties
that the firm has contracted with. The design contracts can include language
that limits the contracting party’s ability to personally sue the design firm’s
employees. These limitations can include restricting liability to a set dollar
amount (such as the dollar value of the contract), excluding liability for
consequential or indirect damages, or expressly restricting all claims against
the individual employees. These provisions can apply to multiple causes of
action, including claims of negligent misrepresentation. They will not shield
the employees from third-party claims but they will limit the claims of the contracting
party receiving the design materials.
Courts have held that contractual clauses
restricting the personal liability of a firm’s employees can be valid,
notwithstanding that the individual employees are not a party to the contract.
In London
Drugs Ltd. v Kuehne & Nagel International Ltd., the Supreme
Court of Canada held that employees can be protected by express or implied
limitation clauses so long as the employees were acting in the course of their
employment and were performing the services provided for in the contract
between their employer and the plaintiff when the loss occurred.
Design
firms can define the standard of care that they and their employees will
exercise in providing design services. This is typically done through a
provision in the contract between the design firm and the contracting party.
Defining the standard of care can reduce uncertainty if the contracting party claims
negligent misrepresentation against the design firm or its employees.
When
the standard of care has not been defined, the standard of care will generally
be assessed as the degree to which a reasonable party, in the position of the
alleged negligent party, would have exercised caution and due diligence in
carrying out the work. Multiple variables can affect this analysis and can lead
to unintended results. Defining the standard of care allows design
professionals to more clearly describe the extent of their professional
obligations and can decrease ambiguity in claims of negligent
misrepresentation. Defining
the standard of care will apply to the claims of the contracting party receiving
the design materials but will not apply to third-party claims.
Liability Insurance
Another key consideration for architects
and engineers wishing to reduce their exposure to personal liability is
insurance coverage. Insurance policies can protect design firms and their
employees in the event of a lawsuit. As with all things insurance, liability
coverage will depend on the particulars of the insurance policy and can vary widely.
For risk-conscious design professionals, the acquisition of expansive insurance
coverage is a reliable strategy for reducing exposure to personal liability.
For more information on this article or any other construction law matter, please feel free to contact any member of our Construction Law industry group.
