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Claim of the Week(2/6/17)- Existing Conditions & Persistent Problems: A Residence Hall Dispute

February 6, 2017

The project was an addition and renovation to a residence hall of a private school. The building involved was over 70 years old at the time. The insured was retained as a sub-consultant to the architect to provide the structural engineering designs.

During the design phase of the project the architect informed the owner it would be necessary for both he and the insured to investigate the existing conditions present in this old building. The owners however decided they would not open the building to inspection because school was in session.

 

 

The insured had to prepare their plans based on the original architectural drawings and certain assumptions as to the existing conditions. Based on the owner’s refusal to open the building for inspection, the insured used XL Insurance Contract Guide language in their contract to limit their exposure: “…the renovation and remodeling of an existing structure requires certain assumptions which may not be able to be confirmed without destroying certain serviceable portions of the building or the expenditure of extraordinary sums of money. Accordingly, the engineer is not responsible for increases in the cost of construction caused by field conditions that differ from the engineer’s assumptions.”

 

Of course when construction began the contractor encountered several hidden problems. These included the original construction deviating from the original plans, various remodeling over the years had altered the original plans, and hidden deterioration differed from assumptions made in preparing the plans.

 

The insured prepared a detailed analysis of all structural related changes and routed their report to all the parties. As a result of unknown conditions found during construction, the contractor was forced to expend additional effort, time, and expense. The contractor then filed a claim against the owner for the costs associated with remedying these conditions as well as the costs associated with accelerating its work to stay on schedule. The owner then turned to the architect, and the architect turned to the insured for preparing the structural designs. The contractor was alleging over $600,000 in additional costs.

 

This case went through two mediation sessions. The main portion of the settlement was between the owner and contractor, with a minor contribution from the insured and the contractor based on a cost of defense analysis. The mediator was very impressed by the contract provision the insured had in the contract and found it convincing enough to limit the insured exposure.

 

Without having the XL Insurance Contract Guide provision added to the

contract it is likely the mediator would have pushed for a much larger contribution from the insured.

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