Professional Liability: Managing Your E&O Risk 31 March 2015
Prepared by Aon Risk Solutions Presentation to Professional Engineers Ontario
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Agenda
Introduction: Aon Errors and omissions
– What is an E&O? – Sample cases/claims
Negligence vs. contract – Your obligations to others – Standard of care – Damages: direct; consequential – Joint and several liability: loser pays
– MSA’s, PO’s, invoices, handshakes – Parties, scope, key clauses – Insurance, additional insureds
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Agenda
Insurance – Who:
• Insured, named insured, additional insured • Practice policy vs. project policy
– What: • Covered • Excluded
– How: • Defence and indemnity
– When: • Timely reporting is key • No admissions/offers to settle/etc.
Risk management considerations Q&A
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Relationships and Risk
Clients Insurers, brokers
Client/third party - negligence
- contractual liability
Your liability - negligence
- contractual liability
Engineer Co.
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Errors and Omissions
What is an E&O? Duty of care
– Owed to…? – Based on nature and scope of services/work
Standard of care – Professional engineering standards, guidelines – Building code requirements, industry practices
Sample cases/claims
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Negligence vs. Contract
Negligence: liability in tort People should exercise reasonable care when they act, by taking into account
the potential harm they might foreseeably cause to other people – Duty of care – Breach of that duty – Causation – Harm (damages)
Obligations Standard of care
– Owed to…? Who is going to rely on your work? – Based on nature and scope of services/work
Duty of care – Professional engineering standards, guidelines – Building code requirements, Industry practices – Not perfection
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Negligence vs. Contract
Damages – Direct – Indirect/consequential – Punitive
Consequential damages can far outstrip direct damages Claims for economic loss such as:
– Costs of delay – Loss of profit – Additional cost of work – Loss of goodwill – Any other indirect loss
E.g. In no event shall either party be liable to the other party hereto for indirect, special, consequential, incidental, punitive or exemplary losses, damages, or expenses or for loss of profit, lost savings or any other economic loss of any kind Be careful. Loss of profit can be a direct loss in some circumstances
Define key terms
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Negligence vs. Contract
Negligence Joint and several liability Litigation costs: loser pays Statute of limitations
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Negligence vs. Contract
Contract Parties
– Who is subject to this contract and its obligations? – What other contracts are there between other project participants? Effect?
Services/work – Delineate scope and responsibilities – Representations and covenants
Some key clauses – Representations, covenants, warranties, guarantees – Liability clauses, waivers, disclaimers, limitations of liability – Indemnification clauses – Covenant to insure – Additional insureds, waiver of subrogation
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Contract
Services/work: delineate scope and responsibilities Engineering; procurement; project management; construction management Intent/purpose/nature of designs Intended recipient/audience; no liability from reliance of others Reliance on others providing accurate, updated information Design professional not responsible for X (e.g. site inspections) Use caution if making representations/covenants
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Contract
Disclaimers: examples Force majeure
– An event impacting performance, over which the party has no control – Labour unrest – Acts of God
Poor/negligent construction Existing or changed site conditions
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Contract
Some key clauses: warranties or guarantees Warranty can limit liability for the design professional (normal negligence
standard) – E.g. Engineer warrants that it will perform its services in a manner
consistent with the standard of care that other engineers would exercise on similar projects and similar conditions.
Warranty can expand liability, potentially uninsured – E.g. Engineer shall perform the services in accordance with the terms of
this contract and all applicable federal, provincial and local laws; and the highest standards of professional engineers performing similar services; and that the product of the services shall be fit for the purposes intended by the client.
Caution: statute of limitations for contract breaches may be longer than statute of limitations for negligence.
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Contract
Waivers The intentional or voluntary relinquishment of a known right Either party to a contract may provide a waiver Intended waivers should be in writing, in the contract
Avoid unintentional waivers due to a party’s conduct
– E.g. Any party’s failure to enforce a provision in the contract shall not be construed as thereafter waiving any such provision. No provision of the contract shall be deemed to be waived unless such waiver is in writing signed by the party against whom such waiver is sought.
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Contract
Indemnity: You (X) agree to accept responsibility for injury or damage on behalf of yourself and Y, relieving Y of liability What’s fair? Whose losses does X wish to indemnify Y for?
– Injury/damage to a third party (not a party to the contract) – Also Y’s own losses?
Which losses will X indemnify Y for? – Liability caused by X’s work/services – Liability relating to X’s work/services, even if contributed to by Y? – Unless caused by the sole negligence of Y? – Only direct losses – Also consequential losses? – Cap the amount of indemnification?
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Contract Indemnity Clauses
Mutual indemnification: E.g. CCDC II Without restricting the parties’ obligation to indemnify as described in paragraphs 12.14 and 12.15, the owner and the contractor shall each indemnify and hold harmless the other from and against all claims, demands, losses, costs, damages, actions, suits, or proceedings whether in respect to losses suffered by them or in respect to claims by third parties that arise out of or are attributable in any respect to their involvement as parties to this contract, provided such claims are: 1) caused by:
– The negligent acts or omissions of the party from whom indemnification is sought or anyone for whose acts or omissions that party is liable, or
– Failure of the party to the contract from whom indemnification is sought to fulfill its terms or conditions; and
2) made by notice in writing within a period of six years from the date of substantial performance of the work… or within such shorter period as may be prescribed by any limitation statute of the province or territory of the place of the work
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Contract
Indemnify, defend, hold harmless “Indemnify”
– To compensate, reimburse, protect from liability – To shift loss from a party who is technically /passively at fault to another
who is primarily/actively at fault “Defend”
– To provide for the defence of the indemnified party – Separate obligation from indemnification
“Hold harmless/save harmless” – To pay the costs of; to keep the indemnified party whole – Goes beyond indemnification
Insurance can operate to defend and hold/save harmless
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Contract
Covenant to insure: A party that contractually agrees to provide insurance on behalf of another will be held accountable for that agreement – It is the responsibility of the additional insured to satisfy itself that the
insurance provided is suitable If insurance is not provided, that party will be held responsible for any loss to
the extent that it would have been covered by insurance A covenant to insure will usually prohibit the insurer who has provided the
insurance from claiming against the other party to the contract, even if the loss arises out of that party’s negligence
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Contract
Subrogation In insurance, subrogation is the right of an insurer who has paid damages
to/assumed an obligation from its insured, to seek redress from a third party that is responsible for the damage/obligation
Once an insurance company has paid a claim to/on behalf of its insured, the insurance company steps into the shoes of its insured and as a result, has all of the rights and defences that the insured had against any one else unless those rights have been contractually waived
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Contract
Statute of limitations Most jurisdictions have statutes that specify the period of time in which a claim
may be brought In Ontario for negligence claims, it is two years from the date the injured party
knew or should have known of the injury or damage. In some jurisdictions it is six years
Can be subject to discovery principles – e.g. when should a reasonably diligent person have become aware of the
loss and who was responsible for that loss? After the expiry of the limitation period, claims are barred Can be incorporated into contractual limitation of liability language
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E&O Insurance
Who: – “Insured” – “Named insured” – “Additional insured”
What: – “Claim”; “loss”; “professional services” – Covered – Excluded – Other insurance (practice policy vs. project policy)
How: – Defence costs – Indemnity: settlements, judgments
When: – Obligation to report claims on time; advantage to reporting potential claims – Do not admit liability, offer to settle, incur costs without insurer’s consent
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Risk Management Considerations
Sources of liability: negligence, contract, (also statute) Contract clauses: can work for you or against you Analyze the risks
– Retained – Shared – Transferable
• To other party • To insurance (yours and/or the other party’s)
Understand and specify the obligations of each party A risk analysis will help determine if the risks are acceptable
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Contact List
Maurice Audet Regional Resource Leader Aon Risk Solutions +1.416.868.5986 [email protected]
Shelley Lloyd J.D. Senior Legal Consultant Aon Risk Solutions +1.416.868.5819 [email protected]
Questions/Thank you Important: (c) 2015 Aon Reed Stenhouse Inc. This presentation contains information and data which is confidential and proprietary to Aon and is intended to remain strictly confidential and to be used only for the recipient’s internal needs and only for the purpose for which it was initially created by Aon. This presentation may not be reproduced, distributed, copied or amended in whole or in part without Aon's prior written consent. This presentation does not constitute legal advice.
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