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SmartRisk LLC

Mission:
Improve performance and profitability through industry analysis, surveys and risk assessments and developing costs effective risk management solutions for design and building professionals. 

Timothy (Tim) Corbett, President of SmartRisk has over 27 years of experience in the design, construction, energy, environmental and insurance industries.  He has extensive claims analysis, insurance underwriting and risk management experience with an understanding of the many challenges for professionals today. As a risk and performance management firm, SmartRisk addresses those challenges through risk analysis and developing specific strategies mitigating risk and exposures. In return, improving performance, profitability and lowering insurance costs.

As an advocate for the industry, our focus is improving your bottom line, enhancing business operations and avoiding claims through cost effective risk and performance management solutions.

Please contact us if you have questions or we can be of assistance.

Timothy J. Corbett, BSRM, MSM, LEED GA
President
tcorbett@smartrisk.biz
www.smartrisk.biz 
T: 626-665-8150  

Indemnity Victory for Design Professionals

On September 29, 2010, California Governor Arnold Schwarzenegger signed legislation, SB 972 changing the indemnity ruling for design professionals that takes effect January 1, 2011. SB 972 changes the statute addressing contractual indemnity and defense cost obligations even if design professionals were found NOT to be negligence in performing services. The new law SB 972 states that contracts between design professionals and local public agencies that defense costs and indemnity provisions must be based on negligence, recklessness or willful misconduct of the design professional.

This is a significant legislative victory for design professional based on recent court decisions from the past few years. Most recently, on January 15, 2010, the California Court of Appeals issued a decision that dramatically expanded exposures for design professionals under common indemnity and defense obligation in professional services agreements. The case; UDC v. CH2M Hill, the Court held that even though design professional CH2M Hill had successfully defended itself and defeated the underlying claims of negligence, CH2M Hill was still obligated to reimburse its client, UDC for attorneys fees and cost incurred in the action based on contract language and state statutes addressing indemnity. Also in June 2008, the California Supreme Court issued a ruling in the case; Crawford v. Weathershield Manufacturing that stated based on contractual language and statute language, the subcontractor still had an obligation to pay defense costs even though they were found NOT to be negligent.

Indemnity provisions are one of the most challenging contractual terms to be negotiated. Great care by the design professional is needed and broard indemnity agreements can be disastrous should litigation occur. The fact remains that many agencies and developers include unfavorable indemnity provisions in contracts and request for proposals and quotations (RFP/RFQ). Another important point is professional liability (PL) insurance is negligence based. The trigger for coverage is negligence and if the design professional is found NOT to be negligence in services rendered, there may not be insurance coverage and on the hook for defense costs for your client. The defense costs in the CH2M Hill case exceeded $400,000.

As a Design Professional, What Should I Do?

Design professionals, do NOT sign broad indemnification clauses. In the Crawford or UDC cases, both had broad indemnity provisions with defense obligations.  If possible, remove the language completely.

If indemnity provisions cannot be removed, ensure they are balanced and negligence based. Your responsibilities to indemnify should ONLY apply based on negligence, and if required, recklessness or willful misconduct (insurance covers negligence).

Remove the defense obligation completely. If this is not an option, ensure the defense obligation is part of the indemnity language and limited to a negligence trigger.

If the duty to defend is a separate statement, ensure it is not worded as a CATCHALL statement. The words such as in the CH2M Hill contract “at the Consultants expense…defend any suit, action or demand brought against Developer or Owner on any claim” influenced the courts decision against the design professional.

If you have existing contracts with unfavorable indemnity or defense language, take a proactive approach if a claim does occur. 1) Assume the lead defense and assure the client they may rely and benefit from that defense. 2) Most claims are brought against the Project Owner from third parties. Claims usually become worse when clients and design professionals engage separate litigation teams.  Offer a joint defense allowing for the sharing of information, sharing costs offering a united defense.  Both solutions require close consultation with legal counsel and insurance carriers.

This is a significant legislative victory for design professionals in California.  However, design professionals still need to take great care when reviewing and developing indemnity and defense obligation provisions.

Copyright apply. This newsletter is for information purposes only and should not be construed nor relied upon as legal advice. Readers should consult with legal counsel regarding their specific situations and circumstances. 

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