The facts

Maria, an architect, and the business owner of an architectural firm—whose firm also has professional liability insurance with Victor—was retained by a developer for architectural design and field review services for the construction of a multi-unit residential complex that consisted of several high-rise and low-rise residences and a common amenity centre. 

A fire broke out on the balcony of one the high-rise towers resulting $11 million in smoke, fire and water damages to the building and contents. The condominium corporation commenced a legal action against the architect, several other design and construction firms and the tenants of the unit where the fire originated. The claimant’s allegations against the design and construction team were based on the defendants’ failure to ensure the ‘firestop’ (fire protection system) elements for the roof space areas were free of design and construction deficiencies. 

Among the allegations made against the architect was the failure to detect upon inspection, the thickness of the material used in the construction of the ‘firestop’ which did not meet design specifications or code requirements. Secondly, it was alleged the architect failed to identify construction deficiencies relating to gaps along the ‘firestop’ walls which contributed to the fire stop walls’ inability to slow down the fire progression.

Unfortunately, the architectural firm found itself named as a defendant in the lawsuit and was caught off guard by these unforeseen issues until they were served with a Statement of Claim. 

So, what went wrong? 

Experts discovered that the thickness of the material specified as a ‘firestop’ installed by the contractor did not meet design specifications, and the architect failed to detect on inspection the material used. Experts also determined that even though the insured had identified deficiencies related to the ‘firestop’ doors during their inspection they failed to follow up and confirm the deficiencies had been addressed by the contractor. 

While the tenants of the unit who caused the fire faced the lion’s share of the liability, the architect faced liability due to the firm’s field review mandate. The architect failed to identify the deficiencies related to the ‘firestop’ materials installed, leaving Maria and her firm exposed to potential legal consequences.

The result

The matter was settled with the plaintiff for a global amount of $1.8 million of which the architect’s contribution was $500,000. The insurer’s expenses for adjusters, lawyers and experts to investigate and defend the insured amounted to $610,000! 

Now let’s talk about deductibles.

Maria’s architectural firm as the insured (policyholder) in this claim example had a per claim deductible under their Victor Architects in Private Practice Professional Liability policy of $25,000 which applied to damages only. Because the policyholder applied for, and was approved for, the risk management credit feature in the policy wording, the deductible was reduced by 50% to $12,500. The policyholder’s contribution towards the $500,000 settlement was $12,500, while the insurer covered the remaining $487,500 along with the $610,000 in claims expenses incurred to investigate and defend the policyholder.  

Risk factors

Risk factor #1

Develop a specific project plan. Some important elements of a project plan include the identification of human resources and experienced personnel responsible for inter- and intra- disciplinary coordination and the production of schedules specific to field services, deliverables and milestones. 

Risk factor #2

Do not certify what you have not seen. If a consultant is required to certify work, it’s imperative that the work be adequately reviewed in person prior to issuing certification. Before agreeing to issue certification, it’s important to establish the nature of the certification and the nature of the certification required in a written contract so that it is clear and specific. For example, if the intent of the certification is to ensure only that construction has been carried out in general conformance with the design, this ought to be expressly set out in the contract. A consultant should also outline the necessary degree and frequency of field reviews to be carried out.   

*This claim scenario is for illustrative purposes only. Please remember that only the insurance policy can give actual terms, coverage, amounts, conditions and exclusions.