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The pandemic may have put the brakes on much of the world’s business, but it hasn’t stopped owners and contractors from filing claims against design professionals. Here we look at the types of claims that are trending at AXA XL Design Professional and include takeaways for learning more about and/or preventing them.

 

Residential projects

The availability of low interest rates is only one factor fueling the recent boom in housing starts. COVID-19 is driving many people out of crowded cities to areas where they can enjoy more open space and fresh air. The residential project claims we see are in both renovations (work from home, anyone?) and new construction. These claims most often arise in single-family-home projects, followed by multifamily dwellings (e.g., apartments, condominiums), assisted living facilities, and retirement communities.

Residential claims tend to be high in terms of frequency and severity. One type of claim we often see is for property damage arising from new construction design. This is frequently the result of water infiltration and its consequences, including mold. Other culprits such as delays, and cost overruns also spur claims against design professionals.

In May 2021, building permits in the U.S. and Canada fell, possibly signaling the beginning of a slowdown in the construction boom. If so, we certainly expect to see an accompanying reduction in the number of residential claims.

Takeaway: To learn more about the types of residential claims we see, along with prevention advice, read the article, “Claim watch: residential projects” in the April 2019 issue of Communiqué.

 

Accessibility issues

We’re seeing more claims arise out of complaints related to the Americans with Disabilities Act (ADA) and Fair Housing Act (FHA), particularly in areas where advocacy groups are most active.

As an example, in August 2020, the U.S. filed a complaint against a developer in federal district court, alleging that 82 multifamily properties, comprising 6,536 total units in Ohio and 12 other states, violated the FHA and ADA.

The settlement was formalized in a consent order that required the developer/ defendant to retrofit the properties to satisfy the accessibility and adaptive requirements of the ADA and FHA.2 Additionally, the developer was required to disclose the names of architects and civil engineers that worked with the developer on residential projects after a certain date, and to make an effort to obtain statements from these designers describing their knowledge of and training in accessible site design. The developer was also required to make an effort to obtain signed certifications from these designers that the plans they reviewed for the developer met all federal accessibility requirements.

Takeaway: If you receive such a certification request from a developer, immediately preserve all relevant project files and exempt them from your firm’s automatic destruction schedules. Also, notify AXA XL and all subconsultants that worked with you on the project. Then discuss within the firm and with your lawyer whether you will comply with the developer’s request, and if so, to what extent.

We’re seeing more claims arise out of complaints related to the ADA and FHA.

Delay claims

Claims that the design professional delayed completion of a project are affecting all types of projects. Contractors are often initiating these claims, alleging contract extras and delays due to the pandemic.

While material shortages and labor inefficiency are familiar challenges in the best of times, the pandemic caused them to soar to an unprecedented level of intensity in scope and duration. Diminished productivity due to employee absenteeism has had several root causes, e.g., illness, quarantine, and lack of public transportation and childcare. The mandates for social distancing and reduced onsite staffing also contributed to delays.

Meanwhile, the global supply chain’s slowdown during the pandemic has caused critical materials shortages and dramatic price increases. (For more about these issues, read “Will it ever get here? Supply chain disruptions increase risk”) But contractors, looking for a “culprit” to blame for delays and a “pocket” that can pay their associated costs, have turned to filing claims against A/Es.

These claims emerge in a couple of ways. A contractor may file a claim against you, based on a claim the owner has filed against the contractor. They may also file claims directly against you, alleging faulty construction management services or design errors.

Takeaway: To learn more about how to prevent and manage delay claims, see the “Delays” chapter of the Contract Guide, available on the EDGE.

What other types of claims are trending? Find out when we continue the discussion in the September issue of Communiqué.

Resources
Complaint - United States v. Miller-Valentine Operations (S.D. Ohio) (justice.gov)
Consent Order - United States v. Miller-Valentine Operations (S. D. Ohio) (justice.gov)

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Global Asset Protection Services, LLC, and its affiliates (“AXA XL Risk Consulting”) provides risk assessment reports and other loss prevention services, as requested. This document shall not be construed as indicating the existence or availability under any policy of coverage for any particular type of loss or damage. AXA XL Risk. We specifically disclaim any warranty or representation that compliance with any advice or recommendation in any publication will make a facility or operation safe or healthful, or put it in compliance with any standard, code, law, rule or regulation. Save where expressly agreed in writing, AXA XL Risk Consulting and its related and affiliated companies disclaim all liability for loss or damage suffered by any party arising out of or in connection with this publication, including indirect or consequential loss or damage, howsoever arising. Any party who chooses to rely in any way on the contents of this document does so at their own risk.

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In the US, the AXA XL insurance companies are: AXA Insurance Company, Catlin Insurance Company, Inc., Greenwich Insurance Company, Indian Harbor Insurance Company, XL Insurance America, Inc., XL Specialty Insurance Company and T.H.E. Insurance Company. In Canada, coverages are underwritten by XL Specialty Insurance Company - Canadian Branch and AXA Insurance Company - Canadian branch. Coverages may also be underwritten by Lloyd’s Syndicate #2003. Coverages underwritten by Lloyd’s Syndicate #2003 are placed on behalf of the member of Syndicate #2003 by Catlin Canada Inc. Lloyd’s ratings are independent of AXA XL.
US domiciled insurance policies can be written by the following AXA XL surplus lines insurers: XL Catlin Insurance Company UK Limited, Syndicates managed by Catlin Underwriting Agencies Limited and Indian Harbor Insurance Company. Enquires from US residents should be directed to a local insurance agent or broker permitted to write business in the relevant state.