Design Defects and Personal Liability: How Can Architects and Engineers Reduce Exposure To Personal Liability?

 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.

Defining the Standard of Care

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.