Design Professionals: A Look at Emerging Issues
                            by William E. Vita, Esq.
                      Gallagher Gosseen Faller & Crowley
                             Garden City, New York
                               Mark J. Gesk Esq1.
                           Wayman, Irvin & McAuley
                            Pittsburgh, Pennsylvania

Mark J. Gesk, Esquire

        Mark Gesk is the Managing Partner of Wayman Irvan & McAuley in
Pittsburgh. Mr. Gesk specializes in design profession litigation. He
received his B.A. from the Pennsylvania State University and his J.D. from
Duquesne University School of Law. He is a member of the ABA
Committee on Professional Liability Litigation and ABA Construction
Litigation Committee; Pennsylvania Bar Association Civil Litigation
Section; the Allegheny County Bar Association Construction Law Section.
He has lectured and written on numerous architect and engineering
professional liability and risk management issues for the AIA,
Pennsylvania Bar Institute, and numerous design professional firms in
Western Pennsylvania.       He currently serves as vice-chair of the
Construction Law Committee of the FDCC.

William E. Vita, Esquire

       William Vita is a partner in the New York law firm of Gallagher
Gosseen Faller & Crowley. He earned his Bachelor’s degree at the
University of Notre Dame and the degree of Juris Doctor from Boston
College. He engages in a wide range of civil litigation, including the
representation of engineers in construction disputes. He is the Chair of
DRI’s Hand and Power Tools Specialized Litigation Group and the Vice-
Chair of the FDCC’s Management Economics and Technology Section.

I.     Introduction

      Design professionals are the litigation targets of many different
types of plaintiffs. Owners sue them directly alleging breach of contract
and professional negligence for economic loss damages or property
damages. Contractors and their sureties sue design professionals for
economic losses resulting from default, impact, or delay claims. Third,

 The writer wishes to acknowledges, with gratitude, the invaluable assistance of
Kevin M. Eddy, associate at Wayman, Irvin &McAuley who provided substantial
contributions in the preparation of this paper
                                        Design Professionals: A Look At Emerging Issues
persons sue design professionals as a result of personal injury or property

       We will examine in this article seven areas of law impacting
potential liability of design professionals. They are the economic loss
rule, extra-contractual liability issues, anti-indemnification statutes,
certificate of merit requirements, limitation of liability clauses, waiver
of subrogation clauses, and arbitration, mediation requirements in

        While these issues have been part of the legal landscape for many
years in some form or another, today, they are the subject on more
scrutiny by lawyers, risk managers and ultimately the courts as methods of
controlling and assigning risk on construction projects. These issues also
reflect the courts’ and legislatures’ tension of balancing legitimate public
interest concerns imposing responsibility for meeting professional
standards and the high cost and uncertainty of litigation.

II.   The Application Of The Economic Loss Rule To Design

         Attorneys and risk managers defending architects and engineers
are increasingly using the Economic Loss Rule to shield their clients from
liability. In the words of one court:

             [t]he Economic Loss Rule is a judicially created
             doctrine that marks the fundamental boundary
             between contract law, which protects
             expectancy interest created through agreement
             between the parties, and tort law, which
             protects individuals and their property from
             physical harm by imposing a duty of
             reasonable care. . . .Simply put, the Economic
             Loss Rule holds that “economic damages are
             not recoverable in negligence absent physical
             property damage or bodily injury.

SME Indus., Inc. v. Thompson, Ventulett, Stainback & Assoc., Inc., 28
P.3d 669; 2001 Utah LEXIS 90 (Utah 2001); citing, W. Page Keeton, et al.,
Prosser & Keeton On The Law of Torts §92, at 657 (5th Ed. 1984); 86
C.J.S. Torts §26 (1997).

      The Utah Supreme Court’s decision is a comprehensive and well-
reasoned analysis of the Economic Loss Rule and its application to design
professionals. The case arose when Salt Lake County entered into a
                                     Design Professionals: A Look At Emerging Issues
contract for architectural and consulting services with Thompson,
Ventulett, Stainback & Associates (“TVSA”). Pursuant to this contract,
TVSA was to provide designs, drawings and specifications for the
renovation of the Salt Lake City Convention Center. The plaintiff, SME
Industries, Inc. (“SME”) was the steel fabricator on the job. SME claimed
that it incurred extraordinary costs of over two million dollars due to the
poor and inadequate plans and specifications created by TVSA. These
poor plans allegedly caused numerous delays and change orders. The
delays caused a disruption of SME’s schedule on unrelated projects.
SME sought an avenue to recoup the cost of the disruptions from TVSA.

        Significantly, SME had no contract with TVSA. SME attempted to
overcome this hurdle by accepting an assignment of rights from the
county. SME then brought causes of action against TVSA for breach of
contract (based on the county’s contract with TVSA); breach of express
and implied warranties; negligent interference with SME’s economic
interests; and TVSA’s professional negligence. The causes of action
based upon express and implied warranties are of interest in a later
section of this article. The two causes of action based on negligence are
of interest in this section.

      The Utah Supreme Court defined economic loss as:

             damages for inadequate value, costs of repair
             and replacement of the defective product, or
             consequential loss of profits - without any claim
             of personal injury or damage to other property.
             . . as well as the diminution in the value of the
             product because it is inferior in quality and
             does not work for the general purposes for
             which it was manufactured and sold.

SME Indus., 29 P. 3d at 680.

         SME argued that the Economic Loss Rule was rooted in products
liability law and therefore the court should not extend this rule to bar
claims of professional negligence by design professionals.

         The Utah Supreme Court did not accept this argument. It noted
that it had previously applied the economic loss rule to construction
litigation and explained that:

             Construction projects are characterized by detailed and
             comprehensive contracts that form the foundation of the
             industry’s operations. Contracting parties are free to adjust
                                    Design Professionals: A Look At Emerging Issues
              their respective obligations to satisfy their mutual

SME Indus., 28 P.3d at 681, citing, Am. Towers Owners Assoc., Inc. v.
CCI Mech., Inc., 930 P2d 1182, 1190 (Utah 1996).

      The court noted that protection against economic loss caused by a
design professionals’ failure, “is but one provision a contractor,
subcontractor, or sub-sub contractor may require in striking his or her
bargain.” Id. For this reason, the court found that negligence claims
brought by contractors against architects are “akin to the types of
commercial situations to which the economic loss rule is meant to apply.”

       As the Utah court noted, many other jurisdictions have similarly
invoked the economic loss rule to bar negligence and malpractice claims
by contractors against architects and design professionals. See, e.g.,
Berschauer-Phillips Const. Co. v. Seattle Sch. Dist. No. 1, 881 P.2 986,
992 (Wash. 1994); Fleischer v. Hellmuth, Obata & Kassabaum, Inc., 870
S.W. 2d 832, 837 (Mo. Ct. App. 1993); Floor Craft Floor Covering v.
Parma Cmty. Gen. Hosp. Assoc., 560 N.E. 2d 206, 212 (Ohio 1990);
Bernard Johnson, Inc. v. Continental Constructors, Inc., 630 S.W. 2d 365,
374 (Tex. App. 1982); Blake Constr. Co. v. Alley, 353 S.E. 2d 724, 727
(Va. 1987); Rissler v. McMurry Co. v. Sheridan Area Water Supply Joint
Powers Bd., 929 P 2d 1228, 1235 (Wyo. 1996); 532 Madison Ave.
Gourmet Foods, Inc. v. Finlandia Ctr., Inc., 750 N.E. 2d 1097, 727 (N.Y.
2001) (the court applied the economic loss rule to bar negligence claims
by nearby businesses when a wall collapsed at a construction site, forcing
the closing of the entire street in front of the construction site for several

       Colorado has also recently refused to allow cause of action against
an engineering firm based on the economic loss rule. Westminster v.
Centric-Jones Constructors, 2003 Colo. App. LEXIS 1432, affirmed in
pertinent part, 2004 Colo. LEXIS 885 (Colo. 2004).

      The Economic Loss Rule has even been applied to prevent a tort
cause of action arising from the Restatement (Second) of Torts, Section
552, regarding negligent misrepresentation. Several jurisdictions have
allowed the recovery of economic losses in the construction industry under
Section 552. Gulf Contracting v. Bibb County, 795 F.2d 980, 992 (11th Cir.
1986) (applying Georgia law); Village of Cross Keys, Inc. v. United States
Gypsum Co., 556 A.2d 1126, 1133-35 (Md. 1989); John Martin Co. v.
Morse-Diesel, Inc., 819 S.W. 2d 428, 432-34 (Tenn. 1991).

                                      Design Professionals: A Look At Emerging Issues
        However, the Utah Supreme Court refused to allow plaintiffs to
make an end run around the economic loss rule by availing themselves of
the tort of negligent misrepresentation. In doing so, the Utah court relied
heavily on the Washington Supreme Court and its decision in Berschauer-
Phillips. Indeed, the Utah court quoted the Washington Supreme Court as

       There is a beneficial effect to society when contractual agreements
are enforced and expectancy interests are not frustrated. In cases
involving construction disputes, the contracts entered into among the
various parties shall govern their economic expectations.              The
preservation of the contract represents the most efficient and fair manner
in which to limit liability and govern expectations in the construction

       Berschauer-Phillips, 881 P 2d at 993; see also, Williams & Sons
Erectors, Inc. v. South Carolina Steel Corp., 983 F2d 1176, 1181 (2nd Cir.
1993) (finding, under New York Law, Section 552 not adopted to permit a
contractor to recover from an architect); Floor Craft Floor Covering, Inc.,

III.   Extra-Contractual Liability For Design Professionals

      Increasingly, architects and engineers are under assault for non-
contractual liability.

        In a newly emerging trend, parties are attempting to sue design
professionals under state consumer protection statutes. The Kansas
Supreme Court recently allowed such a cause of action in Moore v. Byrd
Eng. Co., 41 P.3d 755 (Kan. 2002). In Moore, the plaintiff, a homeowner,
retained an engineering company to design a bridge to provide access to
his property, he alleged that the bridge was not adequately designed, and,
in fact, was already cracking and deteriorating. In addition to his breach of
contract cause of action, the court permitted a cause of action brought
under the consumer protection statute, which permitted the granting of an
additional penalty as well as reasonable attorneys’ fees.

       Taking the opposite view, a federal court, applying the law of North
Carolina, upheld the dismissal of a cause of action against an architect
based on a state consumer protection statute. RCDI Constr., Inc. v.
Space-Architecture Planning & Interiors, 2002 US App. LEXIS 640 (4th Cir.
2002) (the practice of architecture was exempt from the unfair competition

                                     Design Professionals: A Look At Emerging Issues
       Architects have also recently been sued under the Americans With
Disabilities Act. In Lonberg v. Sanborn Theaters, Inc., 259 F3d 1029, (9th
Cir. 2001) plaintiffs sued an architectural firm for allegedly providing
inadequate wheelchair access to a movie theater. The court dismissed
the claim because the plaintiffs were not the owners of the theater).

       A New York court dismissed a negligent misrepresentation claim by
a party against an engineering firm because the plaintiff did not have a
contract with the firm and, as the court found, there was no “relationship
close to privity” between the parties. IT Corp. v. Ecology & Envtl. Eng.,
713 N.Y.S.2d 633 (N.Y. App. Div. 2000). However, two recent cases in
other states did permit causes of action based on negligence to go
forward in the absence of a contractual relationship between the plaintiff
and the design professional.

        Two courts, in Louisiana and Florida, have allowed negligence
based cause of action to proceed against architects, even in the absence
of contractual privity. A Louisiana appeals court was faced with a group of
plaintiffs who were hired as painters to scrape paint off the walls of a
building. The paint contained lead and the painters allegedly were
affected by lead poisoning. During the construction and scraping, an
architectural firm allegedly told the painters that the job site was safe and
there was no risk to these painters. Thomas Wayne Young v. City of
Plaquemine, 818 So.2d 892 (La. App. 1st Cir. 2002). The court found
that, while there was no contract between the plaintiff’s employer and the
architectural firm, such a contractual relationship was not necessary to
hold the architects to a duty of professional care and skill. The
appropriate standard of care involved requesting tests of all hazardous
material on site before offering any opinions regarding the safety of the job
site and activities on the job site.

       In Florida, an appellate court recognized a common law cause of
action against architects based on negligence even in the absence of a
direct contract between the architect and the general contractor. Hewett-
Kier Constr. v. Lemuel Ramos & Assoc., 775 So. 2d 373 (Fla. App. 15th
Cir. 2001).

       A majority of jurisdictions have refused to hold that design
professionals impliedly warrant perfect plans or satisfactory results but
rather, limit the liability of architects to those situations in which the
professional is negligent in his or her services. SME Ind. v. Thompson,
Ventulette, 28 P3d 669 (Utah 2001). Coombs v. Beede, 36 A. 104, (Me.
1896); Gravely v. Providence P’ship, 549 F.2d 958, 960 (4th Cir. 1977);
R.J. Longo Constr. Co. v. Transit Am., Inc., 921 F. Supp. 1295, 1310
(D.N.J. 1996) (and cases cited therein); Johnson-Voiland-Archuleta, Inc. v.
                                     Design Professionals: A Look At Emerging Issues
Roark Assocs., 572 P.2d 1220, 1221 (Colo. Ct. App. 1977); Audlane
Lumber & Builders Supply, Inc. v. D.E. Britt Assocs., Inc., 168 So. 2d
333,335 (Fla. Dist. Ct. App. 1964),; Klein v. Catalano, 437 N.E.2d 514,
525 (Mass. 1982); Borman’s, Inc. v. Lake State Dev. Co., 230 N.W.2d
363, 368 (Mich. Ct. App. 1975); City of Mounds View v. Walijarvi, 263
N.W.2d 420, 424 (Minn. 1978); Queensbury Union Free Sch. Dist. v. Jim
Walter Corp., 398 N.Y.S.2d 832, 835 (N.Y. Sup. Ct. 1977); State ex rel.
Risk Mgmt. Div. v. Gathman-Matotan Architects & Planners, Inc., 653 P.2d
166, 170 (N.M. Ct. App.),; Ryan v. Morgan Spear Assocs., Inc., 546
S.W.2d 678, 681 (Tex. App. 1971); Kemper Architects, P.C. v. McFall,
Konkel & Kimball Consulting Eng’r, Inc., 843 P.2d 1178, 1186 (Wyo.

        However, when an architect or similar design professional does
contract to perform a service, the professional agrees, by implication, to
use reasonable care and skill in performing this service. This duty is owed
only to the party the design professional contracted with e.g., Klein, 437
N.E.2d at 526 (holding that architects provide “an implied warranty that
they [will] exercise the standard of care required of their profession”); City
of Mounds View, 263 N.W.2d at 424 (“one who undertakes to render
professional services is under a duty to the person for whom the service is
to be performed to exercise such care, skill, and diligence as men in that
profession ordinarily exercise under like circumstances”) (quoting City of
Eveleth v. Ruble, 302 Minn. 249, 225 N.W.2d 521, 524 (Minn. 1974));
Gathman-Matotan, 653 P.2d at 169 (“the professional is usually employed
to exercise the customary or reasonable skills of his profession for a
particular job. He ‘warrants’ his work only to the extent that he will use the
skill customarily demanded of his profession”).

IV.    Anti-Indemnification Statutes

      Many states have “anti-indemnification” statutes, which are
designed to prevent parties with greater leverage in construction
agreements from shifting liability exposure for their own negligence to
those parties with less leverage.

        A recent case from the state of Oregon, Walsh Constr. Co. v.
Mutual of Enumclaw, 76 P.3d 164 (Ore. Ct. App. 2003), is a good example
of the policy decisions inherent in the passage of these statutes. The
Walsh case considered the question of whether an anti-indemnification
statute (Oregon Revised Statute §30.140) prohibits “not only direct
indemnity arrangements between parties to construction agreements but
also additional insurance arrangements by which one party is obligated to
procure insurance for losses arising in whole or in part from the other’s
fault.” Walsh, 76 P.3d at 168. As the Oregon court noted, “if you can
                                       Design Professionals: A Look At Emerging Issues
force someone to insure you for your own acts of negligence, what reason
is there to cease to do so?” Id.

       The Oregon court was particularly concerned with situations in
which the general contractor, on the top of the pyramid, shoves liability
down the pyramid, to the sub-contractors, by requiring the sub-contractors
to name each of the contractors above them on the pyramid as additional
insureds. The court found that additional insurance requirements in
construction agreements are void under Oregon’s Anti-Indemnification

        While it is understandable that courts are reluctant to allow property
owners and general contractors to transfer their own liability to sub-
contractors, a New York appeals court has recently grappled with a
situation in which an anti-indemnification statute actually worked to shield
a sub-contractor from its own liability. Such issues often arise when an
employer’s negligence causes injury to an employee. New York’s
Workers’ Compensation Law bars the plaintiff-employee from bringing a
direct action against the employer. However, the employee is free to
institute an action against the owner and general contractor on the job
site. New York’s Anti-Indemnification statute (General Obligations Law
(GOL) §5-322.1) bars an owner or general contractor with only a minute
apportionment of negligence, let’s say 5%, from enforcing contractual
indemnification against the plaintiff’s employer, even if this employer is
responsible for 95% of the liability.

       In Murphy v. Columbia University, 4 A.D.3d 200 (1st Dept. 2004), an
appellate court upheld an indemnification agreement in a case where the
jury had apportioned fault between the indemnitee and indemnitor on a
75% to 25% basis. The language in the indemnification agreement limited
indemnification to “the fullest extent permitted by law.” The New York
Appellate Court read this to mean that partial indemnity, up to the
indemnitor’s apportionment of liability, was appropriate. See also, Dutton
v. Charles Pankow Builders Ltd., 296 A.D.2d 321 (1st Dept. 2002).

V.     Certificates of Merit

       Design professionals, are often targets of suits from injured parties
who seek relief from anyone that may be even remotely associated with a
project that results in personal injury, property damages, or economic loss.
Many malpractice and negligence claims brought against architects and
engineers may have no material basis or justification in fact or law.
Nevertheless, these groundless suits are a source of considerable cost in
terms of direct expenses, increased insurance premiums, loss of

                                      Design Professionals: A Look At Emerging Issues
productive time, tarnished professional reputation, and strain on the
nation's civil justice system.

        In response the malpractice crisis, several states have successfully
curbed the number of baseless claims brought against licensed
professionals by placing the onus of responsibility for screening out
groundless suits on the plaintiff. Generally, the statutes or rules require
the plaintiff to consult with a third party professional to review the facts of
the claim before moving the litigation forward. The plaintiff must then file a
certificate declaring, based on the professional’s review of the allegations
that the third party professional believes that the licensed defendant
deviated from the standard of care. It must also state that there is a
sufficient basis for allegations of professional negligence.

       The following states have some form of certificate of merit statutes
or rule of civil procedure applicable to malpractice lawsuits against design
professionals: Arizona, California, Colorado, Georgia, Hawaii, Kansas,
Maryland, Minnesota, New Jersey, and Pennsylvania.

       Arizona (AZ Stat. § 12-2602 (2004))

        Pursuant to Arizona’s Preliminary Expert Opinion Testimony:
Certification, Plaintiffs who assert a claim in a civil action against a
licensed professional, including design professionals, must certify in a
written statement whether expert testimony is necessary to prove the
licensed professional’s liability or standard of care for the claim. If the
plaintiff determines that it needs an expert’s opinion to establish the
defendant’s standard of care, the plaintiff must file a preliminary expert’s
opinion, via affidavit. However, if the plaintiff asserts that expert testimony
is not required, the defendant may request that the court require the
plaintiff to obtain a preliminary expert opinion. The statute further provides
for content requirements in the expert’s preliminary opinion and relief from
the court for a time extension from which to file their preliminary opinion. If
the plaintiff fails to file a preliminary expert opinion, if necessary, the court
can dismiss the complaint without prejudice.

       California (Cal. Code Civ. Proc. § 411.35 (2004))

        This rule of civil procedure specifically applies to professional
negligence claims against architects, engineers, and land surveyors.
Section 411.35 requires a certificate from an attorney verifying
consultation with a licensed member of the defendant’s profession. The
attorney must certify that there is a reasonable and meritorious cause for
filing the action. This rule also provides that the court can dismiss the
complaint, without prejudice, for non-compliance. The plaintiff only needs
                                       Design Professionals: A Look At Emerging Issues
to file one certificate of merit even if multiple design professionals are

       Colorado (CO Rev. Stat. § 13-20-601 & 602 (2004))

        Colorado’s statute requires the plaintiff’s attorney to file a certificate
setting forth that they consulted with a licensed professional in the
defendant’s profession. The statute applies to all licensed professionals
within the state. The court is permitted to dismiss the claim without
prejudice if the plaintiff does not file the certificate of merit. Defendants
are required to file a certificate of merit if they make counter and cross
claims. The certificate must conclude that the claim has substantial

       Georgia (O.C.G.A. § 9-11-9.1 (2004))

       In order to file a claim alleging professional malpractice, the plaintiff
must file with the complaint an affidavit of an expert competent to testify,
and the affidavit must set forth one negligent act or omission. The statute
permits the plaintiff to file a complaint, and then file their affidavit forty five
days from the date of following. Failure to file an affidavit or filing a
defective affidavit will result in the court dismissing the complaint without

       Hawaii (HI Rev. Stat. § 672-2.5 (2003))

        Hawaii’s statute require plaintiff’s attorney to file a certificate
verifying that a member of the defendant’s profession was consulted prior
to filing the complaint. The statute also permits plaintiff’s attorney to
consult with a licensed professional from any state, not just Hawaii. The
statute states that, if after the consultation, the attorney must then
conclude that there is a reasonable and meritorious cause for the lawsuit.
If plaintiff’s attorney makes three good faith attempts to consult with an
outside professional, the plaintiff’s attorney does not need to file a
certificate. Finally, plaintiff does not need to disclose the name of the
professional who provided the consultation.

       Kansas (KS Stat. Ann. §§ 60-3501 through 60.3509 (2003))

       Kansas has a unique approach. It permits either party to request
the court to have a professional malpractice screening panel review the
claim. The panel is made up of a two licensed professionals in the same
professional as the defendant, one selected by the plaintiff and the other
by the defendant. The third member of the panel is a licensed
professional selected jointly by both parties. Finally, the last member of
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                                                                                  - 10 -
the panel is a licensed attorney, selected from a list maintained by the
court. The statute permits the panel to review any records or evidence
provided by the parties. The panel will then examine whether a causal
relationship between the professional and the damages exists. There are
no consequences for not convening a panel. The party that receives the
favorable decision from the panel pays the costs of the panel. If the panel
is split, the parties split the costs.

       Maryland (MD Cts. & Jud. Pro. Code §§ 3-2C-01 (2003))

       Maryland requires the plaintiff to file a certificate of merit prepared
by a qualified professional in the defendant’s profession within 90 days
after the plaintiff files the complaint. The certificate must state that the
defendant failed to meet the applicable standard of care.

       Minnesota (MN Stat. Ann. § 544-42 (2003))

       Minnesota requires the plaintiff to file an affidavit that an expert in
the defendant’s profession reviewed the facts and aver that the reviewing
professional concluded that the defendant breached the applicable
standard of care. The statute provides for mandatory dismissal and
sanctions if the plaintiff fails to file the affidavit within 180 days after filing
the complaint. Further, the plaintiff’s counsel must have a reasonable
expectation that the expert’s decision and report is admissible. Finally, the
statute permits the plaintiff to conduct pre-complaint discovery in order to
create the affidavit.

       New Jersey (§§ 2A:53A-26 through 29(2004))

       New Jersey requires the plaintiff’s attorney to file an affidavit from a
licensed member of the defendant’s profession. The reviewing expert
must sign the affidavit. The expert must have practiced in the general
area or specialty at issue for at least five years. The plaintiff has sixty
days after they file the complaint. The affidavit must state that “there
exists a reasonable probability that the care, skill, or knowledge exercised
or exhibited in the treatment, practice, or work that is the subject of the
complaint.” The statute permits the plaintiff to file a motion seeking no
more than a sixty day extension to file the affidavit.

       Pennsylvania (Pa. R.C.P. 1042.1 through 1042.8 (2003))

         Rule 1042.1, et seq., requires plaintiffs who file a professional
liability claim must file a certificate of merit within sixty days of the filing of
the complaint. If a defendant joins a licensed professional as an additional
defendant and the complaint to join avers professional negligence
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                                                                                  - 11 -
unrelated to the plaintiff’s averments, must still file a certificate of merit. If
the plaintiff does not file a certificate of merit within sixty days of filing the
complaint, the defendant can non pros the plaintiff’s complaint. The
plaintiff can move for an extension from which to file the certificate of
merit. If the statute of limitations has not expired, the plaintiff can still re-
file the complaint.

        If the plaintiff files its certificate of merit after the sixty day, but
before the defendant moves to enter judgment of non pros, the court must
still accept the certificate of merit. Moore v. Luchsinger, ____ A.2d ____,
2004 PA Super 432 (2004).

       Certificates of merit are outcome determinative under the Erie
decision, and therefore, professional liability cases filed in federal courts
located in the Third Circuit must also include a certificate of merit.
Chamberlain v. Giampapa, 210 F.3d 154 (3d Cir. 2000).

        The plaintiff cannot move for an extension of time to file a certificate
of merit if the sixty days already expired. Furthermore, the rule requiring
filing of the certificate of merit applies to pro se plaintiffs. Hoover v.
Davilia, ____ A.2d ____, 2004 PA Super 314 (2004).

      In a complaint to join an additional defendant, merely because the
complaint to join incorporates by reference the averments of the plaintiff’s
complaint, the complaint to join must also include an expert report even
though the underlying complaint does not allege professional negligence.
Koken v. Lederman, 840 A.2d 446 (Pa. Commw. 2003).

         If a plaintiff files claims that are based on both professional liability
and non-professional liability, the non pros only applies to the professional
liability claims. Jackson v. Sweitzer, 67 Pa. D. & C.4th 239 (York County

VI.    Limitation of Liability

        A trend in design professional litigation is an effort by design
professionals to limit their exposure to damage claims by owners,
contractors, or consultants.          The courts are permitting design
professionals to incorporate limitation of liability clauses in their contracts
to limit their potential exposure by enforcing them.

         A limitation of liability clause, unlike a release, waiver, or liquidated
damages clause, does not exculpate the design professional from any
liability to the owner, but instead apportions the risk or exposure between
the parties. The purpose of the limitation of liability clause is to permit
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                                                                                  - 12 -
contracting parties to agree to a pre-determined amount or type of
damage. Limitations of liability clauses typically involve one or more of the
following limitations: (1) the professional’s fee; (2) a stipulated sum; (3) the
professional’s insurance coverage; and, (4) non-consequential damages.
The most widely used clause limits the professional’s liability to a fixed
dollar amount or the amount of the professional’s fee, whichever is

        Only three states have directly addressed limitation of liability
provisions by statute: Wisconsin (Wis. Stat. Ann. § 895.49); Virginia (Va.
Code Ann. § 54.1-411); and, California (Cal. Civ. Code § 2782.5). The
Wisconsin statute expressly prohibits any provision that limits or
eliminates tort liability in construction contracts. The California statute
expressly prohibits design professionals from contractually limiting their
potential liability. The Virginia statute forbids design professionals from
limiting their liability for damage arising from their acts. These statutes are
not to be confused with anti-indemnification statures, which forbid most
people who enter into contracts from shifting their liability to some other
contracting party. Most states have anti-indemnification statutes.

        In jurisdictions without statutes regulating limitation of liability
clauses, there remains the issue as to whether courts will enforce a
limitation of liability clause in a contract. While certain jurisdictions have
refused to apply limitation of liability clauses, the trend has been to
enforce limitation clauses when the parties are of equal bargaining power
and sophistication. The following line of cases explain the trends and
reasoning courts have taken in examining this developing issue in design
professional litigation.

       A.     Courts sustaining limitation of liability clauses

     Valhal Corp. v. Sullivan Assoc., Inc., 44 F.3d 195 (3d Cir. 1995)

      Valhal Corp. is a leading case holding that a limitation of liability
clause in a design contract is enforceable where the limitation did not
immunize the architect from its negligence (i.e., an exculpatory clause) or
remove the incentive to perform with due care by shifting responsibility for
payment of damages to another party (i.e., an indemnification clause), and
where the parties to the contract are sophisticated and negotiated the
contract at arm’s length.

       In Valhal Corp., an architectural firm performed a feasibility study
related to the construction of a high rise building. The fee for these
services was $7,000. The contract between the architect and project
owner provided a limitation of liability clause stating that “[t]he OWNER
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                                                                                 - 13 -
agrees to limit the Design Professional’s liability…due to the Design
Professional’s professional negligent acts, errors, or omissions, such that
the total aggregate liability of each Design Professional shall not exceed
$50,000 or the Design Professional’s total fee for services rendered on
this Project. Should the OWNER find the above terms unacceptable, an
equitable adjustment surcharge to absorb the Architect’s increase to
insurance premiums will be negotiated.”

       The architect incorrectly reported that height restrictions would not
hinder construction. The owner sued the architect for $2 million, alleging
negligence and breach of contract because the building, as designed,
would violate several height restrictions. Based on the limitation of liability
clause, the architect filed a motion for summary judgment, asserting that
the federal district court lacked jurisdiction because the damages were
contractually limited to $50,000. Therefore, the plaintiff did not satisfy the
amount in controversy requirement.

       The district court denied the design professional’s motion. As such,
the case went to trial. The jury returned a verdict of $1million on the
breach of contract claim. On appeal, the Third Circuit reversed the district
court’s decision and held that the trial court should have granted summary
judgment and declared the limitation of liability clause enforceable.

        The Third Circuit explained that limitation of liability clauses serve
to cap a party’s liability, but do not completely avoid liability as hold
harmless and indemnification clauses might. For this reason, the
limitation of liability clauses is not disfavored, particularly where the
contract is between sophisticated business entities dealing at arms length.

      In Valhal, the court considered the dollar amount of the limitation
clause reasonable, particularly in light of the fact that it exceeded the
amount of the fee earned by the architect for the services by a factor of
seven. The limitation, therefore, did not immunize the architect from the
consequences of its negligence. The court determined that the difference
between the jury award and the $50,000 limit irrelevant.

        Because the jury returned the verdict only on the breach of contract
count in the complaint and not on the negligence count, the owner
asserted that the limitation of liability clause did not apply to the damages
awarded for breach of contract. This court rejected this argument
because it concluded that the architect’s negligence caused the breach of
contract and subsequent damages. Therefore, the clause limited the
damages to $50,000, and the court dismissed the case for lack of

                                      Design Professionals: A Look At Emerging Issues
                                                                                - 14 -
        It was significant to the court that the owner could waive the
limitation of liability clause if it gave proper notice to the architect. The
architect then would adjust its cost to the owner by passing the increased
cost of insurance on to the owner. The court found this concept
persuasive in reaching its conclusion.

         Mistry Prabahudas Manji Eng., Ltd. v. Raytheon Eng. and
                    213 F. Supp.2d 20 (D. Mass 2002)

        In the case of Mistry Prabahhudas Manji Eng., Ltd. (“MPM”), a
federal court, applying Pennsylvania law, held a limitation of liability clause
enforceable. In holding the clause enforceable, the court found the clause
sufficiently conspicuous to both parties and not unconscionable. MPM, an
engineering company located in India, contracted with Raytheon and its
subsidiary, United Engineers International (“UEI”), for the design and
construction of a caustic soda plant. When MPM discovered defects in
the plant MPM sued and sought over $4.5 million in damages.

        Raytheon successfully moved for partial summary judgment on a
limitation of liability clause and on a waiver of consequential damages
clause. The consequential damages clause read as follows: “In no event
shall UEI be liable to MPM whether in contract, warranty, tort (including
negligence or strict liability) or otherwise for any special, indirect,
incidental, or consequential damages of any kind of nature whatsoever.”
The limitation of liability clause limited MPM from recovering only 5% of
UEI’s fee for the part of the plant and 10% of the fee for another section of
the plant. The contract specifically limited MPM’s recovery to these
exclusive remedies. In enforcing the limitation of liability clause, the court
first declared that the plain meaning of the contract would lead a
reasonable person to conclude that the parties intended to limit their
damages.        Next, the court examined whether the clause was
unconscionable.        The court found that MPM did not satisfy the
unconscionability test.       Even though, MPM did not have counsel
negotiating the contract, MPM made that decision. Additionally, the court
found nothing in the record to indicate unfair surprise, nor hidden
boilerplate language. Therefore, the court enforced the limitation clause.

               Illinois Power Co. v. Duke Eng. & Serv., Inc.,
                 2002 U.S. Dist. LEXIS 5497 (N.D. Ill 2002)

      In Illinois Power, plaintiff utility company owned a nuclear power
plant that experienced problems with voltage output.            Defendant
engineering company performed design build services for the plaintiff.
The parties entered into two contracts. The first contract was a “Program
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                                                                                - 15 -
Manager’s Agreement,” and the second contract required the defendant to
perform design build services to address the degrading power output.
Both contracts contained provisions limiting the type and amount of
damage that the program manager/design builder could owe to the owner.
The plaintiff/owner contended that the design builder had committed to
complete the project by a certain date. The date lapsed prior to
completion. The owner sued, alluding that the design builder breached
both contracts, and sought $20 million in damages.

       The design builder moved for partial summary judgment on
damages relating to the breach of contract. The design builder argued
that the contractual provisions limiting the type and amount of damages
meant: (1) the owner could not recover any consequential damages; (2)
the owner could not recover actual damages in excess of a particular
amount; and, (3) the owner’s sole remedy for breach of warranty was re-
performance (and, if the design builder deemed re-performance
impracticable, the design builder could give a credit to be determined by
design builder).

         The court first addressed the second provision; the limitation of
damages to the amount paid to the design builder. The owner argued that
the Illinois Construction Contract Indemnification Act barred the limitation
of damages provision on the ground that it would act as an indemnity from
the design builder’s own negligence. The Illinois statute voids agreements
in construction contracts that “indemni[fy] or hold harmless another person
from that person’s own negligence.” The Illinois Power court concluded
that the statute was designed only to protect injured third parties who
alleged negligence, not the other contracting party. Thus, the statute
would not void the provision limiting the amount of damages that the other
contracting party could recover.

       The owner next argued that public policy prevents engineers from
contractually limiting their liability.  The Illinois Power court again
distinguished between the rights of injured third parties and those of the
other contracting party. The court cited to a number of cases where
courts have held that contract provisions limiting an engineer’s damages
exposure to its clients were enforceable. Finally it held that intentional
breaches of contract are subject to the damages limitation clause.

               Nova Consulting Group, Inc. v. Weston, Inc.,
              2002 Minn. App. LEXIS 301 (Minn. App. 2002)

      In Nova Consulting Group, Inc. v. Weston, Inc., the Minnesota
Court of Appeals affirmed the trial court’s decision of entering summary
judgment in favor of the plaintiff/contractor on the limitation of liability
                                     Design Professionals: A Look At Emerging Issues
                                                                               - 16 -
clause. The contractor brought an enforcement action against the
defendant-owner following a decision by an Illinois district court, which
determined that the limitation of liability clause is enforceable. The Nova
Court began its analysis with the basic principle that when construing an
unambiguous contract, the court should not go beyond the wording of the
contract. The court stated that the parties unambiguously limited the
contractor’s damages to the amount charged for services rendered.

        Generally, exculpatory clauses are not favored by the law and are
strictly construed against the benefited party. If the clause is ambiguous
in scope or purports to release the benefited party from liability for
intentional, willful, or wanton acts, the court will not enforce the clause.
The Nova court applied a two part test: “(1) whether there was a disparity
of bargaining power between the parties (in terms of a compulsion to sign
the contract containing an unacceptable provision and the lack of ability to
negotiate elimination of the unacceptable provision); and, (2) the types of
services being offered or provided (taking into consideration whether it is a
public or essential service).”

        The Nova court found that the defendant owner did not establish
that the parties were in any disparity of bargaining power between the
parties because defendant’s in-house counsel could have reviewed the
contract prior to signing, but Weston’s Vice President chose not to have
counsel review the contract prior to signing. The owner focused its
argument on the type of services prong of the test, and argued that by
limiting the liability of a party that provides a professional opinion on which
the other party relies on undermines public policy. The court disagreed,
and held that the contractor’s services were not a public or essential
service as required by the second prong of the test.

               W. William Graham, Inc. v. City of Cave City,
                        709 S.W.2d 94 (Ark. 1986)

        In W. William Graham, the Supreme Court of Arkansas implicitly
endorsed the validity of limitation of liability clause in design professional
cases where the design professional failed to timely prepare plans.
However, the Arkansas Court construed the limitation of liability clause as
limiting the design professional’s liability for acts of negligence, but not for
allegations of breach of contract. Because the limitation of liability clause
delineated only “negligent acts, errors, or omissions,” and the court could
not consider such language as limiting the design professional’s liability to
a breach of contract cause of action. Therefore, the court refused to
enforce the limitation of liability clause.

              Markborough California, Inc. v. Superior Court,
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                                                                                 - 17 -
                  227 Cal. App.3d 705 (Cal. Ct. App. 1991)

        In Markborough, the court of appeals affirmed the trial court’s
decision granting defendant/engineering company’s motion for summary
judgment on a limitation of liability clause. Plaintiff retained defendant
engineer to design a man made lake. Following construction, the lake
liner ruptured, causing extensive damage. The trial court held that the
limitation of liability clause limited plaintiff’s recovery to the fees paid to the
design professional. The court of appeals held that that Cal. Civ. Code §
2782.5 permits parties to a construction contract to limit liability through
negotiation and express agreement. The court held that a contract
provision that limits liability is valid if the parties had a fair opportunity to
accept, reject, or modify the provision. The court noted that defendant
sent a draft of the contract to the plaintiff with a letter discussing
procedures available to the parties if they wished to negotiate the terms of
the contract prior to signing. The court determined the plaintiff did have
the opportunity to accept, reject, or modify the contract, but chose not to
do so.

       B.      Cases where the limitation of liability clause found void

                                 Viner v. Brockway,
                             30 Cal. App. 4th 1307 (1994)

         In Viner, the California Court of Appeals affirmed the trial court’s
decision not enforcing the limitation of liability clause in an engineering
contract. The court began its analysis by examining Cal. Civ. Code §
2782.5 and declaring that there is a statutory public policy that generally
favors negotiated and expressly agreed upon limitation of liability clauses
in construction contracts. The courts place emphasis on the word
“negotiated.” The California courts interpreted “negotiated” as meaning
“…the parties have a fair opportunity to accept, reject, or modify a liability
provision.” However, the California courts will strike down a limitation of
liability clause if the court finds that the limitation of liability provision is
unconscionable or otherwise contrary to public policy. A court will find that
a limitation of liability clause violates public policy if:

               It involves a transaction which exhibits some or
               all of the following characteristic: It concerns a
               business of a type generally thought suitable
               for public regulation; the party seeking
               exculpation is engaged in performing a service
               of great importance to the public, which is often
               a matter of practical necessity for some
               members of the public; the party holds himself
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                                                                                  - 18 -
             out as willing to perform this service for any
             member of the public who seeks it, or at least
             for any member coming within certain
             standards. As a result of the essential nature
             of the service, in the economic setting of the
             transaction, the party invoking exculpation
             possesses a decisive advantage of bargaining
             strength against any member of the public who
             seeks his services. In exercising a superior
             bargaining power the party confronts the public
             with a standardized adhesion contract of
             exculpation and makes no provision whereby a
             purchaser may pay additional reasonable fees
             and obtain protection against negligence.
             Finally, as a result of the transaction, the
             person or property of the purchaser is placed
             under the control of the seller, subject to the
             risk of carelessness by the seller or his agents.

        Even though both parties relied upon attorneys to negotiate the
contract, the court held the limitation of liability clause unenforceable as
against public policy. While the court recognized the importance of the
Markborough decision, the Viner court distinguished its case because the
plaintiffs were homeowners and not a sophisticated entity like the plaintiff
in the Markborough. Additionally, the plaintiff in Viner contracted with the
defendant to repair a landslide that occurred on their property. The City of
Los Angeles required the citizens to repair the land or face civil penalties.
These two factors were enough for the court to find limitation of liability
clause unenforceable.

           Rocky Pointe Properties, Inc. v. Sear Brown Group,
                        5 A.D.2d 911 (NY 2002)

        In Rocky Pointe, the appellate court decline to enforce a limitation
of liability clause against a successor entity because the court could not
determine whether the plaintiff adopted or ratified the prior contract.

       Defendant entered into a contract to provide architectural and
engineering services on a townhouse project with a corporate named
Torado, Ltd. The agreement limited the liability of Sear Brown “due to its
negligent acts, errors, or omissions.” As the project began, Torado
discovered that it needed additional funding. Two other individuals were
asked to join with the original three shareholders of Torado. They formed
a corporate entity known as Rocky Pointe Properties, Inc. Torado
assigned all of its interests in the property to Rocky Pointe Properties.
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                                                                               - 19 -
Sear Brown, aware that Rocky Pointe took over the project, did not enter
into a new written agreement with Rocky Pointe. Sear Brown continued to
perform services on the project and provided additional services outside
the scope of the original agreement.

       When Rocky Pointe filed a lawsuit against Sear Brown, alleging
defects in the design, Sear Brown moved for partial summary judgment,
asking the court to enforce the limitation of liability clause. The trial court
granted the motion. On appeal, the appellate court reversed. The Rocky
Pointe court held that Sear Brown did not meet its burden of establishing,
as a matter of law, that Rocky Pointe ratified the original agreement with
Torado. Therefore, the jury needed to decide this issue. The court further
reasoned that when ownership of a project changes hands, a party
seeking to preserve its contractual rights, including limitations of liability,
the parties should negotiate a new contract with the new owners. Failure
to due so may cause the loss of favorable terms. The change of
ownership may also be an occasion to renegotiate bad terms of an old

                City of Dillingham v. CH2M Hill, N.W., Inc.,
                        873 P.2d 1271 (Alas. 1994)

        In City of Dillingham, the Alaska Supreme Court examined whether
a limitation of liability clause in a design professional contract withstands
scrutiny under Alaska’s anti-indemnification statute.                 The anti-
indemnification statute forbids parties in a contract from contractually
compelling another party to indemnify design professionals. The Alaska
Supreme Court interpreted Alaska’s anti-indemnification statute, which is
similarly worded to anti-indemnification statutes in other states, to bar the
limitation of liability clauses. The court based its decision on the lack of
specific language in the statute exempting limitation of liability clauses
from the statute’s scope and application. In conclusion, because the court
concluded the limitation of liability clauses violated the anti-indemnification
statute, the limitation of liability clause violated Alaska’s public policy.


       A well settled rule of insurance law is that upon payment of a loss,
the insurer is entitled to be subrogated pro tanto to any right of action
which the insured may have against a third person whose negligence or
wrongful act caused the loss.

      The AIA standard construction contract documents, specifically AIA
document A201-1997, General Conditions of the Contract for
Construction, contain a clause (Paragraph 11.4.7) requiring the owner and
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                                                                                - 20 -
contractor to waive all rights against each other and against the architect’s
consultants for damages to property to the extent such damages are
covered by property insurance. The clause also requires the owner’s and
contractor’s insurance policies to contain waivers of the insurer’s rights of
subrogation against the other parties in the even that a claim made by the
owner or contractor is paid. This clause is intended to place the ultimate
burden or property loss with the insurer to the extent of coverage and to
prevent the insurer from shifting responsibilities back to other parties.

       A.     Cases where courts have enforced the waiver of subrogation

                     Butler v. Mitchell-Hugeback, Inc.,
                    895 S.W.2d 15 (Mo. Sup. Ct. 1995)

       The defendant designed a 1990 retro fit for a warehouse under
contract with the owner of the building, Butler. The building collapsed the
next year.

       The retro fit involved three contracts. The first document was an
owner-architect agreement, referred to as AIA document B151. Article 9
of the owner-architect agreement provided, in part:

              9.4   The owner and architect waive all rights
                    against each other and against the
                    contractors, consultants, agents, and
                    employees of other for damages, but
                    only to the extent covered by property
                    insurance during construction, except
                    such rights as they may have to the
                    proceeds of such insurance as set forth
                    in the addition of AIA document A201
                    General Conditions of the Contract for

       The owner-contractor agreement incorporated AIA document A201,
which required the contractor to obtain property insurance. The owner-
contract agreement also contained a waivers-of-subrogation clause
against each other, the architect, and the architect’s consultants to the
extent insurance covered the property.

        The plaintiff’s expert opined that the cause of the collapse included
insufficient steel reinforcing bars placed in the hollow core of the pilaster
before the concrete was poured.             The expert also stated that a
subcontractor improperly cut trust girders with a torch, and this caused the
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                                                                               - 21 -
removal of the outermost spacer bar. The expert stated that this conduct
was contrary to accepted construction-engineering practices.            The
architect should have observed the improper cutting of the trust girders.

       The Missouri Supreme Court held that the architect was a third-
party beneficiary to the contract between the owner and the contractor,
and, thus, entitled to the benefit of that agreement. The court further held
that the general conditions were applicable to the lawsuit, and work, as
defined in the general conditions, included the services required by the
contract documents, whether completed or partially completed. Therefore,
the court concluded that the owner had proper insurance. Finally, the
court held that the entire retro fit was still under the owner-architect
agreement and general conditions and that the final certificate of payment
had not been issued. Therefore, the contract required the general
contractor to maintain sufficient insurance, and, as such, the waiver of
subrogation clause protected the design professional. Finding the waiver
of subrogation proper and applicable to the design professional, the court
sustained summary judgment in favor of the design professional based on
the waiver of subrogation clause.

                  Walker Eng’r, Inc. v. Bracebridge Corp.,
                    102 S.W.3d 837 (Tex. App. 2003)

        In Walker Engineering, the Texas Court of Appeals reversed the
trial court’s entry of judgment for the defendant because, inter alia, the
waiver of subrogation clause precluded recovery. The defendant in
Walker Engineering was the owner of property, who entered into a
contract with a non-party contractor for the construction of an office
building. This contractor hired plaintiff to perform electrical work at the job
site. During construction, two of plaintiff’s employees burnt a hole in a
water line, causing extensive damage to the building. Defendant’s
insurance company paid for the loss and then stepped into the shoes of
the defendant to subrogate their loss.

        Plaintiff filed a declaratory judgment action asserting that the waiver
of subrogation clause barred a subrogation claim. Even though the
plaintiff stipulated that its negligence caused the hole in the water line, the
Texas Court of Appeals entered judgment in favor of the plaintiff holding
that the waiver of subrogation clause prevented the insurance company
from recouping its payment.

      The waiver of subrogation clause stated, in pertinent part: “The
owner [defendant] and contractor [plaintiff] waive all rights against (1) each
other and any of their subcontractors, sub-subcontractors, agents and
employees, each of the other...for damages caused by fire or other perils
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                                                                                - 22 -
to the extent covered by property insurance obtained pursuant to
Paragraph 11.3 or other property insurance applicable to the Work.... The
policies shall provide such waivers of subrogation by endorsement or
otherwise. A waiver of subrogation shall be effective as to a person or
entity even though that person or entity would otherwise have a duty of
indemnification....” Essentially, plaintiff argued that defendant could not
sue because the damages were covered by other property insurance
applicable to the work.

         The Texas Court of Appeals reasoned that defendant waived its
right to recover against plaintiff for the property damage because those
damages were covered by the policy in conjunction with the work
performed by plaintiff. The court stated that the purpose of the waiver of
subrogation clause is to eliminate the need for lawsuits by protecting all
contracting parties from property loss under the owner’s property
insurance. The Walker Engineering court justified its decision by stating:
“[a] waiver of subrogation is useful in construction projects because it
avoids disruption and disputes among the parties to the project. It thus
eliminates the need for lawsuits, and yet protects the contracting parties
from loss by bringing all property damage under the all risks builder’s
property insurance.” The purpose of the waiver is in effect to simply
require one of the parties to the contract to provide property insurance for
all of the parties.

      St. Paul Fire and Marine Ins. Co. v. Universal Builders Supply,
              2004 U.S. Dist. LEXIS 21613 (S.D.N.Y. 2004)

          In St. Paul Fire and Marine Ins. Co., the trial court granted
defendant contractor’s motion to dismiss for failure to state a cause of
action because the waiver of subrogation clause in the contract prevented
plaintiff insurer from subrogating its losses. This case demonstrates that a
design professional can use Rule 12(b)(6) motion (or other type of
demurrer motion) to dismiss an insurance company’s attempt to recover
monies paid when the underlying contract contains a waiver of
subrogation clause.

        In St. Paul Fire and Marine Ins. Co., plaintiff builder’s insurance
company sought recovery from defendant contractor for monies paid to
settle claims from a collapsed scaffolding. The contract between the two
parties required the owner to obtain a builder’s risk policy to cover the
owners, the contractor, and all sub-contractors and a rider waived all
parties’ rights of recovery against each other or third parties for claims that
are covered by the policy, specifying that the policy had to grant its
insured a waiver. The builder’s risk policy contained a waiver of
subrogation clause.
                                      Design Professionals: A Look At Emerging Issues
                                                                                - 23 -
       The court held that the clause precluded the litigation because New
York law recognizes the validity of waiver of subrogation clauses. The
court began its analysis by examining the specific terms of the waiver as
executed by the parties. Next, the court cited the reasons for enforcing
the waiver of subrogation clauses, namely: “they avoid disruption and,
disputes among the parties to the project, and protect the contracting
parties from loss by bringing all property damage under the all risks
builder’s property insurance.” Furthermore, the court held that the waiver
of subrogation clauses are enforceable even if the contractor acted with
gross negligence. The court rejected plaintiff’s contention that the
detrimental effect of encouraging litigation outweighs any deterrence to
contractors from committing gross negligence. The court concluded that
New York courts would permit a waiver of subrogation clause to bar
claims of gross negligence. This holding is contrary to Colonial Prop.
Realty, Ltd. v. Lowder Constr. Co., Inc., supra, where the court found the
waiver of subrogation clause inapplicable for claims alleging gross

           Best Friends Pet Care, Inc. v. Design Learned, Inc.,
                   823 A.2d 329 (Ct. App. Conn. 2003)

       In an action to recover for damage sustained by plaintiff as a result
of negligence of defendant, a construction manager, the plaintiff appealed
from summary judgment entered in favor of defendants. The plaintiff
brought a subrogation action against several contractors and consultants.
The defendants moved for summary judgment arguing that the waiver of
subrogation foreclosed the possibility of the owner instituting a
subrogation action against any of the defendants.

       Essentially, the court applied the state’s anti-indemnification statute
to determine whether Connecticut’s public policy permits waiver of
subrogation clauses. The waiver language mirrors the language in other
cases. Applying traditional tools of statutory interpretation, the court found
that the statutory language provided no assistance to the court. As such,
the court relied on case law from other jurisdictions that have examined
the waiver of subrogation clause under their anti-indemnity statutes. The
court found that no court relied on its anti-indemnity statute in refusing to
enforce a waiver of subrogation clause. The court reasoned that the
waiver of subrogation clause spreads the risk and the obligation of
insuring the persons and property at the job site. Therefore, the court
dismissed the plaintiff’s claim, and enforced the waiver of subrogation

                                      Design Professionals: A Look At Emerging Issues
                                                                                - 24 -
             St. Paul Fire & Marine Ins. Co. v. Elkay Mfg. Co.,
                    2003 Del. Super. LEXIS 13 (2003)

       Defendant contractor moved for summary judgment contending that
the plaintiff’s claims were barred by the waiver of subrogation clause in a
contract between itself and plaintiff’s insured. The trial court granted the
motion as to the waiver argument and the Superior Court affirmed.

       During construction of a nursing home facility, flooding ensued
because of faulty water chillers. Plaintiff, owner’s insurance company,
made payments pursuant to an insurance policy. Plaintiff then brought
this subrogation action. Essentially, the waiver prevented the owner’s
insurer from seeking subrogation from any of the contractors as long as
insurance provided for compensation to any of the damages.

       The plaintiff raised three arguments contending that the waiver
should not apply. First, that Del. Code Ann. 6 § 2704(a) acts as an
accountability statute that prevents anyone involved in the construction
industry from avoiding responsibility for their own negligence. Essentially,
§ 2704(a) acts as an anti-indemnification statute. The court declined to
extend § 2704 to preclude waiver of subrogation clauses because nothing
within the plain meaning or legislative intent indicates that the legislature
intended to preclude waiver of subrogation clauses through this provision.
The Superior Court noted that there is extensive case law that upholds the
enforcement of the waiver of subrogation clause.

       The court dismissed the plaintiff’s argument that it did not have
notice of the clause between the owner and the contractor. The court
reasoned that the provision is common in the industry. The plaintiff
asserted that it was inappropriately forced to pay insurance proceeds
because of its insured’s failure to notify them of the waiver. However, the
court stated that this complaint lies against the insured and not the
defendant plumbing contractor.

    Summit Contractors, Inc. v. Gen. Heating & Air Conditioning, Inc.,
                      595 S.E.2d 472 (SC 2004)

        In Summit Contractors, an employee of defendant subcontractor
allegedly caused damages by negligent soldering, and the insurer paid the
contractor under its property loss policy. The trial court direct a verdict in
favor of the defendant based on the waiver of subrogation clause. In
affirming the trial court’s decision, the Supreme Court of South Carolina
read the waiver of subrogation as an affirmative act by the contractor to
preclude its insurer from recovering under a subrogation theory. While the
contract would hold the subcontractor liable for any uninsured damages to
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                                                                                - 25 -
the contractor, the damages that were paid with insurance proceeds were
exempt from recovery.

               Trinity Universal Ins. Co. v. Bill Cox Ins., Inc.,
                      75 S.W.3d 6 (Ct. App. Tex. 2002)

      Although none of the parties in this case were design professionals,
this case provides an overview as to the scope of the waiver of
subrogation clause in Texas. The Texas Court of Appeals analyzed two
approaches in determining whether the waiver of subrogation standard
language in an AIA agreement barred an insurer’s subrogation rights.
One approach evaluates a distinction between work and non-work
property. The second approach limits the scope of waiver to the proceeds
of the insurance provided under the contract between the owner and
contractor or its subcontractors.

      The Texas Court of Appeals first examined whether the insurance
company needed notice of the clause. The court noted that the parties
entered into the AIA contract before the owner entered into the insurance
contract with the insurer, and therefore held that the insurance company
had constructive notice of the waiver of subrogation clause.

        Once the court determined that the insurer had proper notice, the
court then began to examine the waiver of subrogation clause under both
approaches. The courts that interpret the scope of the waiver by drawing
a distinction between “work” and non-work property ask only whether the
work was damaged. If yes, then the waiver applies, if no, then the waiver
does not apply. Under this interpretation, “it makes no difference whether
the policy under which subrogation is sought is one which the owner
purchased specifically to insure the work pursuant to the contract or some
other policy covering the owner’s property in which the owner has also
provided coverage for the work. In either event, the waiver clause, if given
its plain meaning, bars subrogation only for those damages covered by
insurance that the owner has provided to meet the requirement of
protecting the contractor’s limited interest in the building, i.e., damages to
the Work itself.” The work/non-work approach, however, is the minority
approach. The majority of courts do not attempt to distinguish whether the
work of the project or other property is damaged.

       Rather, the majority of courts hold that the AIA language places a
duty upon the owner to obtain property insurance that covers the interest
of the owner, contractor and subcontractors. If the owner fails to obtain
insurance, the owner bears the risk of loss to the extent that damages are
not covered by insurance.

                                       Design Professionals: A Look At Emerging Issues
                                                                                 - 26 -
         The court held that the subrogation waiver clause in the standard
AIA form contract does not bar the owner’s insurer from seeking recovery
from the contractor for property damage to the owner’s building so long as
the damage is not to the actual work the contractor performed under the
contract. The waiver of subrogation clauses are intended to avoid
litigation over claims for damages while also protecting the parties by “in
effect simply requiring one of the parties to the contract to provide
insurance for all of the parties.”

       Penn Ave. Place Assoc., LP v. Century Steel Erectors, Inc.,
                    798 A.2d 256 (Pa. Super. 2002)

         In Penn Avenue, the Pennsylvania Superior Court held that the
waiver of subrogation clause in construction contracts between an owner
and contractor and between the contractor and subcontractor were not
against public policy, even if the contractor and subcontractor were liable
for causing a fire that damaged the owner’s property. The property
owner’s contract with the general contractor for building renovations
contained a standard waiver of subrogation clause relating to all aspects
of the work performed by the general contractor and all subcontractors.
The general contractor and a subcontractor allegedly caused a fire that
damaged all parts of he building, including parts under renovation and
parts not under renovation. The Superior Court agreed with the trial court
that the breadth of the waiver of subrogation clause barred the owner’s
claims. The court further found that the waiver of subrogation clause did
not violate public policy because it did not protect the contractors from
liability for their own negligence, and because it related only to losses for
which the owner already had insurance coverage. Because the court
found the clause broadly worded, the clause related to all damages in the
entire building, not just the parts under renovation.

       The Washington Court of Appeals affirmed the trial court’s
judgment. Appellant-contractor and respondent properly incorporated the
waiver, although it was not attached to the trade contract. The wavier
form was a standard form used by contractors, and was referred to in the
instructions to bidders.

      B.     Courts that have not enforced the waiver of subrogation

       For the most part, as the case law above demonstrates, courts
have enforced waiver of subrogation clauses. However, there have been
certain factual situations where courts have not enforced the waiver of
subrogation clause.

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                                                                               - 27 -
              The Midwestern Indem. Co. v. Systems Builders, Inc.,
                  801 N.E.2d 661 (Ct. App. Ind. 2004)

        The Superior Court of Indiana reversed the trial court’s entry of
summary judgment in favor of defendant. The defendant argued to the
trial court that a waiver of subrogation clause insulated it from liability to
the destruction of a building caused by a fire. In reversing, the Superior
Court agreed that the trial court correctly dismissed plaintiff’s subrogation
claims with respect to the building itself. However, the Superior Court
reversed the trial court’s decision that found the waiver clause applied to
the buildings contents. The Superior Court remanded to the trial court for
the personal property claims made by plaintiff’s insured. The court
reasoned that because the waiver and the contract as a whole only
protected the project and the work performed, the parties never intended
for the clause to extent to the personal contents within the building.

                Colonial Prop. Realty, Ltd. P’ship v. Lowder
                Constr. Co., Inc., 567 S.E.2d 389 (Ga. App.

       In Colonial Prop. Realty Ltd. P’ship v. Lowder Constr. Co., Inc., the
Georgia Court of Appeals held that waivers of subrogation for post-
construction losses are valid and enforceable and not contrary to public
policy. Colonial Properties, the owner of an apartment complex in Macon,
Georgia, suffered losses one year after the complex was completed, when
one of the buildings sustained extensive damages caused by a fire
inadvertently started by a resident. Colonial’s insurer paid the loss.
Lexington Insurance Company, the insurer, brought a subrogation action
in Colonial’s name against Lowder, the contractor.

        The contract between Lowder and Colonial incorporated AIA
document A201/CMA, General Condition of the Contract for Construction,
Construction Manager-Advisor Edition, 1992 Edition, which provided that
“if after final payment, property insurance is provided on the completed
project, the owner shall waive all rights for damages for fire or other perils
covered by the property insurance. The owner and contractor also waive
all rights against each other and the construction manager for damages to
the extent covered by property insurance.”

       The Georgia Court of Appeals, in ruling that such the waiver of
subrogation does not violate public policy, reasoned that when the parties
to a business transaction mutually agree that the owner will provide
insurance a part of the bargain, the court must construe the agreement as
providing mutual exculpation to the bargaining parties. Parties to a
construction contract may agree to look solely to insurance to cover their
                                     Design Professionals: A Look At Emerging Issues
losses, and that an intent to do so is the well recognized meaning of a
“waiver of subrogation” clause.” The Georgia court relied on prior case
law from other jurisdictions that found Paragraph 11.3.7 of A201/CMA
applicable to cases where the contractor finished the project and had no
remaining insurable interest in the property.

       However, because Georgia holds that a party cannot insure itself
for acts of gross negligence, there remained an issue of fact on whether
the contractor acted with gross negligence in failing to install certain fire-
blocking materials that would have impeded the spread of the fire.
Therefore, court remanded the case for trial, to determine whether gross
negligence committed voiding the waiver of subrogation clause.

VIII.   Arbitration and Mediation Clauses

       Arbitration is a popular means for resolving construction disputes.
Standard forms of construction agreements usually contain mandatory
and binding arbitration clauses that are enforced by most courts against
the signatories to the agreement on contractual and public policy grounds.

        The 1997 edition of AIA Document A201, the American Institute of
Architect inserted language with the General Conditions that required the
parties to submit certain claims to mediation as a condition precedent to
arbitration or the institution of legal proceedings. While the parties are
always free to modify or remove the mediation clause from the General
Conditions, history indicates that parties generally make few changes to
the standard AIA contract language.

      This section first examines recent case law interpreting the scope
and application of arbitration clauses in design professional contracts.
This section also includes an examination of case law interpreting and
examining the recent mandatory mediation requirement found in AIA
General Conditions.

        A.    Mandatory Arbitration

             Cumberland Cas. & Surety Co. v. Lamar Sch. Dist.,
                    2004 Ark. App. LEXIS 703 (2004)

       The school district brought a claim against Cumberland, a surety,
alleging additional payments were due under a performance bond.
Cumberland moved to demand arbitration. The trial court denied the
motion. However, the Arkansas Supreme Court reversed.

                                      Design Professionals: A Look At Emerging Issues
        During construction of a new school, Cumberland’s insured advised
that it could not complete the construction contract. The school declared
the company in default according to the terms of the performance bond.
The school retained a new construction company to complete the building.
The school then sued Cumberland for a balance owed. Cumberland
argued that the dispute was subject to arbitration because the underlying
contract between the school and the first contractor required arbitration of
any disputes. Cumberland argued that because it stepped into the shoes
of the contractor, the school and the surety were bound to the terms of the

       The Arkansas Supreme Court agreed, and held that the arbitration
provision, which was incorporated into the performance bond, bound all
the parties. Even though the arbitration clause contained ambiguities, the
court construed all ambiguities in favor of arbitration.

   MPACT Constr. Group, LLC v. Superior Concrete Constructors, Inc.,
                    802 N.E. 2d 901 (Ind. 2004)

       In MPACT, the owner failed to pay the subcontractor and, the
subcontractor filed a mechanics’ lien foreclosure suit against the owner
and the contractor. The contractor and the owner asserted cross claims
against each other in the mechanics’ lien lawsuit. The Indiana Supreme
Court found that the subcontractor did not have to arbitrate its claims and
that those parties who had an arbitration clause with other parties needed
to pursue with arbitration.

       The owner entered into a contract with a contractor to build a travel
plaza.     The contractor, in turn, entered into subcontracts with
subcontractors. When the owner failed to pay for work and supplies on
the travel plaza, subcontractors commenced various lawsuits against the
owner and the contractor. The contractor filed cross-claims against the
owner. The contractor moved to compel arbitration between the owner,
contractor, and subcontractor.

       The owner and contractor entered into the AIA Standard Form of
Agreement Between Owner and Contractor, Document No. A101, 1987
edition, which incorporated the AIA General Conditions of the Contract for
Construction, Document No. A201, 1987 edition, specifically Article 4.
The contractor and subcontractor entered into an agreement that was not
an AIA form document.

      The Supreme Court ruled that: (1) the owner and general contractor
were obligated to arbitrate their disputes, but (2) the subcontractors were
not obligated to arbitrate their claims. The owner and general contactor
                                    Design Professionals: A Look At Emerging Issues
were obligated to arbitrate the general contractor’s mechanics’ lien and
contract claims as well as the owner’s contract claims. The court applied
the Federal Arbitration Act because of the interstate nature of the project.
The project, located in Indiana, with the general contractor based in
Tennessee, and the owner headquartered in Utah, demonstrated
entanglement of interstate commerce. The owner-contractor agreement
required arbitration of the disputes between the general contractor and the
owner. The subcontract agreements did not expressly incorporate the
arbitration provisions of the prime contract. The general contractor relied
on flow down provisions in the subcontracts that incorporated the prime
contract into the subcontract agreements. The subcontractors, however,
were able to successfully argue that the prime contract was incorporated
into each of the subcontracts only as applicable to the specific work to be
performed. The arbitration provision, therefore, did not apply to the
individual subcontracts. The court reasoned that the parties did not satisfy
the “meeting of the minds” requirement, and therefore, the contractor
could not compel arbitration on the subcontractors.

           T.R. Mills Contractors, Inc. v. WRH Enterprises. LLC,
                    93 S.W.3d 861 (Tenn Ct. App. 2002)

        In T.R. Mills Contractors, Inc., the Tennessee Court of Appeals
examined whether the Tennessee Uniform Arbitration Act applied to
arbitration clauses in a written but unsigned contract.

       The T.R. Mills Court, joining the majority of jurisdictions, found that
the Arbitration Act required enforcement of the arbitration clause in the
written contract absent a signature. In finding that the parties bound
themselves to the contract, the court examined the entire factual record
submitted by the parties and concluded that all parties performed their
respective obligations under the contract. The court relied on the plain
meaning of the Uniform Arbitration Act, and found that the statutory
language did not require a signature on the contract calling for arbitration.
Instead, the Act requires the parties to enter into a “writing,” not a signed
contract. Because the Court found the contract a valid “writing” under the
meaning of the Arbitration Act, the Court concluded that a signed contract
is unnecessary to enforce arbitration. Essentially, the Court held that
under the contract by estoppel doctrine, the parties entered into a valid
and enforceable contract.

                           Blanton v. Stathos,
                   570 S.E.2d 565 (S.C. Ct. App. 2002)

                                     Design Professionals: A Look At Emerging Issues
        In Blanton, the South Carolina Court of Appeals affirmed the trial
court’s decision granting confirmation of an arbitration award because the
Federal Arbitration Act compelled arbitration.

       Stathos contracted with Blanton to provide design professional
services for the construction of a restaurant. The parties entered into an
AIA contract that contained a clause providing for arbitration of any
disputes. South Carolina law requires certain notice requirements that
both parties agreed were not in the contract.

        The principle holding from Blanton focuses on the situation where
the state statute requires the contract to contain specific notice language
about the arbitration. However, the party seeking to enforce the arbitration
clause can look to the Federal Arbitration Act if the facts show that
materials used in performing the contract came from channels of interstate
commerce. If the moving party sufficiently demonstrates that a sufficient
interstate commercial transaction occurred during performance and the
contract contains an arbitration clause, the Federal Arbitration Act requires
enforcement of the arbitration provision regardless of a state statute
requiring additional notice requirements.

       B.     Waiver of Arbitration

     A.S.W. Allstate Painting & Constr. Co., Inc. v. Lexington Ins. Co.,
                   94 F.Supp.2d 782 (W.D. Tex. 2000).

        A.S.W. performed renovations to an apartment building, pursuant to
the standard terms of AIA contract A107-1987. During renovations, a fire
broke out causing extensive damages. The building owner’s insurance
company, Lexington Insurance Company, paid the owner $647,000 in
accordance with their policy. Lexington subrogated its losses against
A.S.W, after it obtained a report indicating that A.S.W.’s conduct caused
the fire. A.S.W. filed a declaratory judgment action seeking a judgment
that Article 17.6 barred Lexington from asserting a subrogation claim.
Lexington filed a motion to compel arbitration, pursuant to section 10.8 of
the contract, of all claims, including whether Lexington’s insured waived
any subrogation rights. A.S.W. argued that no valid arbitration agreement
existed between it and Lexington. A.S.W. argued that the arbitration
clause required the insured to arbitrate any disputes or claims, and the
express terms of the contract did not bind A.S.W. and Lexington to
arbitrate. The district court agreed with A.S.W. and dismissed Lexington’s
motion to compel arbitration.

                                      Design Professionals: A Look At Emerging Issues
       The court found that, after a review of section 17.6 of the contract
that Lexington’s insured and A.S.W. waived all rights against each other
for “damages caused by fire or other perils to the extent covered by
property insurance.” The court held that the arbitration clause did not bind
A.S.W. to arbitrate its claims pertaining to a subrogation claim brought by
an owner’s insurer.

       C.     Refusing to compel arbitration

                  RTKL Assoc., Inc. v. Baltimore County,
            2002 M.D. App. Lexis 190 (M.D. Ct. Spec. App. 2002)

      Appellant RTKL Associates and Andrews, Miller & Associates were
an architect and engineer, respectively, who moved the trial court to
compel arbitration in a lawsuit filed by the appellee county. The trial court
denied the motion to compel because the statute of limitations expired.
The Maryland Court of Appeals affirmed the trial court’s decision.

       In RTKL, the design professionals argue that an arbitration
provision in the underlying contract required arbitration of any claims
brought by either party against another party to the contract. The court
began its analysis by setting forth the basic principle that parties can only
resolve their disputes through arbitration if the parties voluntarily agree to
substitute a private tribunal for the public tribunal already available to all
parties. As such, the Maryland Uniform Arbitration Act requires the court
to determine whether an agreement to arbitrate the dispute exists. The
court held that the parties did not enter into a valid arbitration agreement
because the intentional deletion of the dispute-resolution clause, with
nothing more, would indicate to a reasonable person that the parties did
not reach an agreement to arbitrate disputes as suggested in the county’s

       D.     Timeliness of Arbitration

               Carlin Pozzi Architects, P.C. v. Town of Bethel,
                    767 A.2d 1272 (Conn. App. Ct. 2001)

        Architectural firm and various defendants entered into a contract for
architectural services in conjunction with construction of a new school.
The contract contained the AIA B141, 1997 ed. arbitration clause.
Plaintiff, an architect, appealed from an order granting Defendant’s motion
for summary judgment, that ordered the parties to arbitrate their disputes.
The architect argued that the courts should decide whether the statute of
limitations expired.

                                     Design Professionals: A Look At Emerging Issues
        Following construction, problems arose with the roof and HVAC
systems. The owner demanded arbitration, requesting an arbitration
panel determine the amount of damages. The architectural firm sought an
injunction, seeking to enjoin the arbitration, claiming that the statute of
limitations expired. The trial court concluded that the courts, and not
arbitration, were the proper forums for determining whether the statute of
limitations precluded any lawsuit for design defects.

        Whether the parties intended to arbitrate the issue of “arbitrability,”
the contract must contain an express provision providing for arbitration.
Unless the agreement shows such intent, the determination of the
“arbitrability” remains a function for the court. The courts look for “positive
assurances” in the contract to determine whether the parties intended for
courts or arbitration to decide whether an arbitration panel has the power
to determine whether the claims are subject to arbitration. Under the
“positive assurances” test, the court must limit its inquiry to whether the
reluctant party, namely the architect in this case, agreed to arbitrate its
grievance. The Court of Appeals concluded that the contract made no
positive assurances that the parties intended to exclude the issue of
timeliness from arbitration.

       E.     Mediation

                    HIM Portland, LLC v. Devito Builders, Inc.,
                        317 F.3d 41 (1st Cir. 2003)

       Plaintiff owner contracted with defendant builder to renovate a
motel. Plaintiff sued defendant for breach of contract, slander of title, and
fraudulent misrepresentation. The contract between the parties contained
an arbitration clause similar to Article 9 of AIA standard contract B141-
1997. The trial court denied the plaintiff’s motion to compel arbitration
because the parties intended to require mediation as a condition
precedent to arbitration.

        On appeal, the First Circuit Court of Appeals affirmed. The Court
began its analysis by looking at the Federal Arbitration Act. The Act states
that a party to an arbitration agreement that is subject to conditions
precedent could not, without satisfying those conditions, compel arbitration
under the Act. Because the parties intentionally conditioned arbitration
upon either party’s request for mediation, the plaintiff’s failure to request
mediation precluded it from compelling arbitration under the Act. The
court found that the clause requiring mediation prior to arbitration spoke
with remarkable clarity. Under the plain language of the contract, the
arbitration provision of the agreement was not triggered until one of the

                                      Design Professionals: A Look At Emerging Issues
parties requested mediation. Because neither party attempted to mediate
their dispute, neither party could be compelled to arbitration.

                   High Valley Homes, Inc. v. Fudge,
             2003 Tex. App. LEXIS 3273 (Tex. Ct. App. 2003)

       The owners entered into a residential construction contract where a
contractor agreed to construct a new home. As the design professional
prepared the site plans, the owner’s worried about the quality of the work.
The owners terminated the contract. The design professional filed a
mechanics’ lien against the owners.         The owners filed a suit for
declaratory relief seeking to invalidate the lien and claiming damages
under Texas law. The contractor filed an answer, plea in abatement, and
a counterclaim. The contractor filed a motion for mediation, in which it
alleged that the contract contained a mediation clause and that the owners
had failed and refused to agree to mediate the dispute. The trial court
held a hearing on the contractor’s motion, and the parties were ordered to
binding arbitration. The trial court found that the construction contract
provided for binding arbitration and not mediation. It ordered the parties to
binding arbitration on all claims.

        The arbitrator concluded that the owners were legally justified in
terminating the contract.       The arbitrator ordered the contractor to
indemnify the owners for defending against any mechanics’ liens. The
owners filed a motion to enter the award of the arbitrator. The contractor
appealed to the trial court to vacate or modify the arbitrator’s award. The
trial court affirmed the arbitrator’s decision. The Texas Court of Appeals
affirmed the judgment of the trial court.

      The disputed portion of the owner-contractor agreement provided in
relevant part:

             “Mediation: All controversies arising out of this
             Project and this Agreement shall be resolved
             through mandatory, binding mediation, which
             shall be in accordance with the Rules of the
             American Mediation Association, existing at the
             time the request for mediation is filed. The
             mediator shall be empowered to decide the
             controversy and issue a binding award, even if
             one or more parties declines, neglects, or
             refuses to participate in the mediation. The
             mediator shall have the authority to award
             reasonable attorneys’ fees.”

                                     Design Professionals: A Look At Emerging Issues
        The contractor contended that it requested mediation as required
by the Residential Construction Liability Act (RCLA) allowed, not binding
arbitration. The contractor argued that the RCLA controls the case. The
RCLA authorized, but did not require mediation in applicable cases. The
contractor argued that the owners’ claims came within the purview of the
RCLA, and, because the RCLA only provided for mediation, the trial court
did not have authority to order arbitration. The RCLA did not displace
otherwise binding agreements entered into by the parties. The RCLA did
not preclude parties to a residential constructing contract from agreeing to
another form of alternative dispute resolution.

        The Texas Court of Appeals found that the owner-contractor
agreement misused the term mediation, when the obvious intent of the
parties expressed throughout the agreement was to submit any claims to
binding arbitration. Although the contract used the term “mediation,” the
contract manifested an agreement to submit disputes to binding
arbitration. The term “mediation” was qualified by the terms “mandatory”
and “binding.” The provision plainly stated that the “mediator shall be
empowered to decide the controversy and issue a binding award.” This
language concluded that the trial court had correctly construed the
contract as requiring binding arbitration, rather than mediation.

                                    Design Professionals: A Look At Emerging Issues

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