ABC Company, a structural engineering firm, entered into an oral contract with an architect to provide limited structural design, consisting of mostly calculations for the design of a new attached garage for a single family home.1 During construction, the general contractor and homeowner made several changes to the design including a deck with a hot tub on the top of the garage. In the area of one of the beams, cracking and deflection was noticed. ABC Company provided a design to reinforce the beam and it appeared the problem was resolved. However, after cracks appeared in the garage ceiling, the homeowner was not satisfied with the design, and brought in an expert who said the beam was under-designed. ABC Company maintained that the beam was not under-designed and that the changes made without their knowledge or input were the cause of the cracks.
The homeowner filed suit against the architect, and ABC Company, claiming $190,000 in damages. An expert obtained on behalf of both ABC Company and the architect felt that there were only minor problems with the design and the majority of the problems arose from changes made by the general contractor and homeowner. During settlement negotiations, the city notified the homeowner that if the work was not complete by the end of the year, the project would need to be redesigned to meet the specifications of the next year’s building code-further complicating matters. The homeowner reduced the original demand of $190,000 to $80,000. Eventually, both ABC Company and the architect agreed to pay $40,000 each toward settlement. The total cost of this claim, including defense was $142,273.
Risk Factor #1
The insured did not have a written contract. Written contracts can help by clearly documenting duties and ramifications if changes are made without the insured’s knowledge or approval. A written contract should also include provisions on changes made during the course of the project. In addition, a limitation of liability clause may have also helped to mitigate the insured’s risk.