PROFESSIONAL LIABILITY UPDATE
A L o s s P r e v e n t i o n N e w sl e t t e r f o r t h e D e s i g n P ro f e s s io n
MSP PL 03/02: “Setting Your Record Retention Policy” March, 2002
Setting Your Record
Paperwork. The modern design firm Regardless of why a claim occurs, a
is drowning in it. Plans, reports, sched- firm’s defense will largely rest on its
ules, requests for information, technical ability to produce records of
calculations, memos and other cor- what actually happened.
respondence are scattered across a That is especially true if the
variety of mediums: computer claim occurs years after
disks, blueprints, photo- project completion as there
graphs, and the old staple: are fewer other means
paper — reams of it. (e.g., witnesses) to confirm
Once a project is com- your side of the story.
pleted, the question of The law tradition-
what to do with all these ally has offered design firms some
records arises. Should a protections against “stale’” claims –
firm keep them? If so, how those started so long after the work was
long should the firm keep them? And completed that the firm couldn’t be held
what records should it keep? The answer reasonably responsible. These protec-
is: it depends. (Continued on page 2)
A Matter of Liability
In This Issue:
The issue of how long to retain re-
Setting Your Record Retention Policy…..…...1-4
cords usually revolves around the need
to defend your firm against charges of Statutes of Repose.……..………….………….2
negligence and professional liability. Do You Ever Use Subcontractors?……….…….4
Simply put, a consulting firm that pro- 3rd Commandment of Loss Prevention 5
vides a professional service may find it-
self sued for negligence long after its
work is done and the project completed.
These claims can come years –
sometimes decades – later and involve Cavignac & Associates
I N S U R A N C E B R O K E R S
problems that have more to do with poor License No. OA99520
maintenance and upkeep than initial de- 1230 Columbia Street, Suite 850
sign errors. Whatever the time lapse, San Diego, CA 92101-3547
your firm can still be the princi- Phone: 619-234-6848! Facsimile: 619-234-8601
pal target. Web Site: http://www.cavignac.com
Record Retention (Continued from page 1)
Statutes of Repose
AL 13 years
tions are usually embodied in two areas of law: statutes of limi- AK 10 years
tations and statutes of repose. AR 5 years for property damage
4 years for personal injury
Statutes of Limitation AZ 8 years
CA 4 years for patent defects
Statutes of limitations set time periods in which a party can 10 years for latent defects
file a lawsuit once a defect has been discovered or an injury CO 6 years
caused. This can be problematic as the discovery of a defect or CT 7 years
an injury could happen at any time — often long after the work DC 10 years
has been completed. That means that a firm’s exposure to a DE 6 years
FL 15 years
claim could theoretically run forever
GA 8 years
So, while statutes of limitations do offer some protection, it HI 10 years
is a thin protection at best. Recognizing this, several profes- IA 15 years
sional organizations, including the National Society of Profes- ID 6 years for tort
sional Engineers, the American Institute of Architects and the 5 years for contract
Associated General Contractors of America, lobbied state legis- IL 10 years
IN 10 years
latures to adopt statutes of repose.
KS 10 years
Statutes of Repose KY
Statutes of repose differ from statutes of limitations in that MA 6 years
they set definite time limits under which a cause of action can MD 10 years
ME 10 years
be brought against the design firm. Under a statute of repose, the MI 6 years
time limit starts running at a specific point in the project’s life, MN 10 years
generally either at the completion of services or the substantial MO 10 years
completion of construction. Once the time elapses, all causes of MS 6 years
action are barred, no matter when the injury occurs or the defect MT 10 years
is discovered. NC 6 years
ND 10 years
Statute of repose time frames vary from state to state, with NE 10 years
some as short as four years and others as long as 15. Some NH 8 years
states, like Kentucky, do not offer a statute while other states NJ 10 years
may impose different lengths of repose for different types NM 10 years
of claims. (See the table for a state-by-state summary of statutes NV 10 years for known defects
of repose.) 8 years for latent defects
6 years for patent defects
NY None/3 year statute of limitations
OR 10 years
PA 12 years
Because of their concrete time limits, statutes of repose offer PR 10 years
design firms a stronger level of protection against stale claims. RI 10 years
They also help dictate the minimum lengths of time firms SC 13 years
should retain their records. Generally speaking, firms should SD 10 years
TN 4 years Note: These are very
keep records for the length of repose plus two or three years for
TX 10 years
a safety margin. UT 6 years
Firms may also want to keep in mind that professional liabil- VA 5 years subject to change.
ity insurers report that nine out of ten claims are brought within VT 8 years Have your legal
five years after project completion and nearly all claims are filed WA 6 years counsel verify
within nine years of substantial completion. WI 10 years the applicable rules
(Continued on page 3) WV 6 years in your territory.!
WY 10 years
Record Retention (Continued from page 2) 2. Documents retained should include contracts,
approvals, drawings, specifications, calcula-
Knowing how long to keep project documents, tions, reports, design criteria and standards,
however, is only half the battle. The other half is records of phone calls, advisory letters, prod-
determining what to keep. uct research, submittal logs, site visit reports,
First, a firm does not have to keep everything. correspondence with contractors, owners or
In fact, it is often best that a firm does not keep agencies, change orders and close-
everything. The reason is “discovery.” out documentation.
Discovery is a legal process that allows oppos-
3. “Working” documents, drafts and notes
ing attorneys to get access to all of a firm’s records should be scheduled for destruction soon after
relating to the project. “All,” in this case, means the final document is created. Keep only the
every plan, every schedule, every memo, every final document, not all the iterations that lead
piece of correspondence — including e-mail — in up to it. Those early versions may contain in-
short, everything that a firm or its employees has complete or inaccurate information that could
kept, whether it knows that it has the information mislead a judge or jury.
on file or not.
Discovery can turn up some ugly surprises if a 4. Do not use sticky notes (paper or electronic).
firm has not taken a consistent and systematic ap- They can cause confusion if they are mis-
proach to record retention. For example, records placed or raise questions of whether or not
can be scattered among several locations. They can there were other notes that were removed.
include drafts of plans that were later discarded 5. Require that employees aggressively manage
or — true dynamite in an attorney’s hands — cop- e-mail with most e-mail correspondence be-
ies of informal com- ing purged after relatively short periods — six
munication among months or a year.
team members con-
taining inflamma- 6. Do not allow employees to archive records
tory remarks about offsite. A forgotten box of records in an em-
the quality of work ployee’s garage is as subject to discovery as
being performed. those records found in an office file cabinet.
The solution is 7. Make sure your policy covers desk calendars
to develop and en- and daily planners.
force a company-
wide record reten- 8. Archive electronic records on an appropriate
tion policy that storage medium and consider keeping a dupli-
clearly states what cate copy off-site, but make sure both copies
kinds of records are to be retained, sets out sched- are destroyed at the same time.
ules for record destruction and outlines how and 9. Provide for suspension of record destruction
where records are to be stored. in the event of pending or ongoing litigation.
Continuing to destroy relevant documents
Rules of Thumb when you know a claim is likely can be inter-
preted as an attempt to eliminate damag-
While there is no one record retention program ing evidence.
that fits all companies — and a firm should develop
one with the assistance of its legal counsel — there 10. When the time comes, destroy the records.
are some simple rules of thumb you can follow. Discarded records may be retrievable at a fu-
ture date so be sure that the records are de-
1. The plan should be written and distributed to stroyed through shredding, burning or other
all employees. Clients should also be in- irreversible methods.
formed and a firm may want to consider re-
(Continued on page 4)
cording acknowledgement of the policy
through additional contract language.
Record Retention (Continued from page 3)
11. Make sure this plan is consistent from project Conclusion
to project. You don’t want to be caught doing
Using the applicable statute of repose in your
a little too much “house cleaning” on that one
jurisdiction or jurisdictions, it is well advised to es-
job that went south. (Courts have shown that
tablish and then follow a formal record retention
they are willing to accept a company’s expla-
policy. Have it drafted or at least reviewed by legal
nation that records were destroyed in accor-
counsel and then distribute it to all appropriate em-
dance with company policy only if the firm
ployees. Such a system can go a long way toward
can show that its policy was consistently im-
eliminating the clutter of unnecessary paperwork
plemented.) For that reason, it is critical that
and ensuring appropriate records are maintained in
all employees know, understand, and be held
the event of a future dispute or claim.!
accountable for implementing a firm’s record
Disclaimer: This article is written from an insurance perspective and is meant to be used for informational
purposes only. It is not the intent of this article to provide legal advice, or advice for any specific fact,
situation or circumstance. Contact legal counsel for specific advice.
Do You Ever Use Subcontractors?
Note that the term is “subcontractors” and not The blanket subcontract should basically state that
“subconsultants.” Certainly most design professionals the agreement covers all work done for you by the sub-
(especially architects and prime engineers) will, at contractor during a given period of time unless a sepa-
times, use consultants to complete a portion of the work rate subcontract has been issued for work done on a spe-
for which they have contracted. cific job.
On occasion, however, certain professionals The blanket subcontract agreement can be issued to
(geotechnical and environmental engineers are good ex- all subcontractors that you use on a repetitive basis. You
amples) will use subcontractors. The subcontractors should also obtain a blanket insurance certificate at the
may drill for a soil sample, test borings, or other things. time the blanket subcontract agreement is issued that
While most design professionals have a standard provides evidence of the insurance required in the sub-
form “sub-consultant” agreement that they use, many do contract, and specifically names you as an additional
not have a standard form “subcontract” agreement (they insured (the Additional Insured Endorsement you
are different). Of even more concern is when design pro- should request is a CG 20 10 11 85). You should also
fessionals sign their subcontractors’ purchase order forms. get a copy of the Additional Insured Endorsement.
Purchase order forms are a subcontractor-drafted You might consider establishing a guideline for
agreement, and almost without exception are written to your project managers on the use of the blanket subcon-
protect the subcontractor. Design professionals should tracts. For example:
develop their own subcontract agreements and avoid
" A job-specific subcontract is required for any sub-
signing a subcontractor’s agreement at all costs.
contract, either exceeding $50,000 or lasting more
The problem is that a lot of times these are small
than three months.
jobs. By the time a contract is signed, the job has come
and gone. You can reduce your risk substantially by us- " If more than one billing is anticipated for a job, and
ing a blanket subcontract. this blanket subcontract is used, a one page notice to
The basis for a blanket subcontract can be your ba- proceed can be issued, providing a subcontract num-
sic subconsultant standard agreement with insurance re- ber to allow your accounting system to track total
quirements designed for a subcontractor and a broader billing for the subcontractor on a job.
indemnification provision running in your favor.
While no system is perfect, a blanket subcontract
The contractual coverage in a contractor’s general
agreement will enable you to have appropriate risk man-
liability policy is broader than the contractual coverage
agement protections in place for those contractors that
in a professional liability policy, and therefore a con-
you use on a repetitive basis for smaller jobs. !
tractor can sign an intermediate form indemnity and still
of Loss Prevention
The Third Commandment:
Foresee the Foreseeable – Identify Those Areas of the Contract that Tradition-
ally have been a Source of Liability for A/E’s and Address them in the Negotia-
tions and/or the Language of the Contract
Excepted from “Ten Commandments of Loss Prevention”
by Gunther O. Carrle, Esq. Copyright RA&MCO Insurance Services, 1998
Shop Drawing Review Ownership of Documents
" The purpose of your review should be clearly " You should retain ownership.
stated. Generally, it is limited to a review for " Do not permit your documents to be used for
general conformance with design concept and completion of the project, for additions thereto
with the information contained in the contract or for other projects without permission of the
documents. You are not reviewing for: means A/E and with additional compensation.
and methods of construction, safety, dimen-
sions, methods of installation, etc. Your shop " The alternative is to require that your seal and
drawing stamp should clearly set forth the pur- title block be removed and the documents re-
pose of, and limitations on, your review as con- drawn and reviewed by a design professional.
tained in your Agreement. The shop drawing Construction Cost
stamp cannot modify your contrac-
tual obligations. " Detailed cost estimates vs. preliminary estimate
of construction cost.
" You should specify which shop drawings are to
be submitted and immediately return shop " Preliminary cost estimates should allow for
drawings that do not require your re- contingencies and escalating labor and mate-
view immediately. rial costs.
" Require the contractor to review and approve " If detailed cost estimates are required, the
shop drawings first and do not review shop owner should retain the cost estimator.
drawings which have not been reviewed by “As-Built” or Record Drawings
" You should be entitled to rely on data supplied
" Maintain a log of when shop drawings were re- by contractors without independent verification
ceived, what action was taken, and when they subject only to your obligation to note obvious
were returned. discrepancies of which you have actual knowl-
" Document all of your shop drawing comments. edge and, possibly, your obligation to detect er-
rors which a reasonably prudent (architect or
" Require that the contractor notify you
engineer) exercising usual and customary pro-
fessional skill and care would have detected.
" Your contract should state that you will not re-
view a manufacturer’s shop drawings prepared Structural Details
in response to a performance specification for a " If the structural details (in particular connec-
determination that the system will per- tions) raise questions of means and methods,
form properly. The Third Commandment (continued on page 6)
The Third Commandment (continued from page 5) " You should not be responsible for delays
the contract should limit your responsibility for caused by the design/build contractor.
means and methods to that aspect.
" Determine that your insurance provides cover-
" Should be retained by the owner. age for indemnification agreements.
" You should be entitled to rely on their conclu- " Only agree to indemnify against losses to the
sions without independent verification. extent that they arise directly as the result of
" They should be required to make specific de- your professional negligence in the perform-
sign recommendations, not merely present ance of services under this Agreement.
raw data. " Specifically determine who is to be indemni-
fied – limit it to the Owner, employees
Owner and Vendor Supplied Data and agents.
" You should be entitled to rely on such data " Get a mutual indemnification where possible.
without independent verification subject to the
same limitations as in “as-built” drawings. " Under certain circumstances, anti-
indemnification statutes preclude them.
Limitation of Liability Clauses
" You should not be responsible for code compli-
ance of design/build work. " Limit liability to your fee, to available insur-
ance, to a fixed amount or exclude damages re-
" You should not be responsible for the adequacy sulting from loss of profits and loss of use.
of the design/build systems.
" The limitation must be rationally related to the
" Your obligation to coordinate should be limited services rendered.
to providing the design/build contractor with
the design criteria to be used by you that im- " There should be a preamble that sets forth a ba-
pacts on his aspect of the project, i.e. the archi- sis for the clause such as:
tect can provide a space layout and wall section " “Insurance is not available for the risk”
to the HVAC contractor; in turn, you should re- " “The fee is small in relation to the risk."
ceive HVAC criteria that impacts on your as-
pect of the project, i.e. architect receives size
and location of ducts from HVAC contractor.
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