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Claim of the Week(2/15/17)- Vicarious Liability: Subpar Subconsultants

Insurance information on sub-consultants had not been verified and there were no certificates of insurance on file – sound familiar?

The insured was a multi-disciplined design firm, which contracted with a regional airport authority, a quasi-governmental entity. The project was part of a $41M expansion to the airport and included the removal of the existing baggage handling system and the design and installation of a new, state of the art baggage screening and handling system. For the insured, the project was out of state and therefore outside of their comfort zone.

Bag screening was enhanced through the installation of five highly sensitive x-ray machines and the use of on-screen high-resolution technology to enhance the rate of screened baggage.

While it was obvious that the new baggage system was to be connected to the structure in which it was housed, unfortunately it was not shown in the design. This, along with many other alleged technical issues, culminated with the airport authority filing claims alleging design errors and omissions with the electrical systems and mechanical systems, and the contractor alleging delay of the project. In addition to the multiple technical issues, there were several additional problems related to project administration that only exacerbated the controversy. These issues included:

• The owner reduced the insured’s construction administration scope of work, lessening their time on site and their ability to observe, report and correct potential problems.

• The owner’s on-site representative was not proactive and failed to mitigate several of the coordination issues.

• The insured was forced to respond to inquiries beyond its reduced scope of work when construction administration issues arose and still became embroiled in a post-completion claim scenario requiring the retention of defense counsel, increased time and a significant cost in the defense of these claims.

• The contractor failed to properly coordinate his work, submit an acceptable baseline schedule and implement a recovery plan.

• The change order, which the owner forced the insured to sign off on, did not authenticate or allow for additional days of work, yet the contractor still presented a substantial delay claim.

• Atypical of industry requirements, the contractor did not notify the client or the design professional of a claim within a specified period of time and failed to submit justification for the delay claim by comparing updated project schedules to a baseline schedule or by substantiating a negative impact to the critical path of the project.

• The contractor did not abide by the insured’s request that each delay claim be addressed as it arises. Instead they waited until the end of the project when any delays were influenced by the cumulative effect of all project delays.

The main issue that ensnared the insured was that its mechanical and electrical sub-consultant, who specialized in baggage screening and handling systems, used a third–level sub-consultant for their design. Insurance information on these sub-consultants had not been disclosed or verified and there were no certificates of insurance. Therefore, when remedial costs were incurred and the subs did not respond, attempts to go directly to their insurers were also unsuccessful. Therefore, the insured became vicariously liable for the costs, delays and designs of these highly specialized sub-consultants.

While the delay claim was able to ultimately be resolved for approximately $150,000, multiple errors and omissions continued to be raised before the project closed out. The claim could have been mitigated, although probably not altogether prevented, by maintaining time-tested control features that we espouse.

Uninsured sub-consultants, heightened oversight for unfamiliar and high-profile designs, out-of-territory projects, and projects involving specialty design sub-consultants remain issues that need constant review and consideration by the insured in conjunction with their insurance professionals and counsel.

#ClaimoftheWeek #RiskManagement #VicariousLiability #Subconsultants

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