A&E Reporter

Volume 3 - Issue 3 July 2008

In this Issue

Current Developments in A&E Law

Private Civil Action under the Fair Housing Act must be Initiated within Two Years After Issuance of Certificate of Occupancy In Garcia v. Brockway, 526 F. 3d 456 (9th Cir. 2008), the 9th U.S. Circuit Court addressed the issue of when the statute of limitations begins to run in a design-and-construction claim under the Fair Housing Act (FHA). In these consolidated cases, plaintiffs appealed the District Courts ruling that their FHA claims were time-barred by the applicable two-year statute of limitations. The FHA provides that an aggrieved person must commence a civil action within two years after the occurrence or the termination of an alleged discriminatory housing practice. See 42 U.S.C. 3613(a)(1)(A). In the instant case, the 9th Circuit Court found that the alleged discriminatory housing practice was the failure to design and construct the dwelling according to FHA standards. The plaintiffs asserted three theories to extend the two-year statute of limitations period to cover their lawsuits: 1. an FHA design-and-construction violation is a continuing one that does not terminate until the building defects are cured; 2. the encounter theory, namely that the statute of limitations should not begin to run until the aggrieved person encounters the design-and-construction defect; and 3. similar to the encounter theory, the limitations period does not begin to run until the aggrieved person discovers the design-and-construction defect.

Decennial Liability: What is it and How Does it Affect ----

Design Professionals Performing Design Services Internationally? Current Developments in A&E Law Private Civil Action under the Fair Housing Act must be Initiated within Two Years After Issuance of Certificate of Occupancy Supreme Court of Oregon Examines Application of Economic Loss Doctrine in Property Damage Case Supreme Court of Washington Finds No Damages for Delay Clause Unenforceable Upcoming Beazley and Industry Events

Decennial Liability: What is it and How Does it Affect Design Professionals Performing Design Services Internationally?
By Colleen M. Palmer, Esquire Traditional liability for architects and engineers in the United States arises out of a failure to perform in accordance with generally accepted standards of professional skill and care. Thus, even in the case of a catastrophic failure, absent proof that the design professional breached that standard of care, i.e., committed negligence, the design professional will not be liable. This negligence based standard, however, is not necessarily the applicable standard in all countries. Decennial liability is a prime example. Origins of Decennial Liability: Decennial liability, or responsabilit decnnale, is a form of strict construction liability arising from the French Civil Code under which no proof of negligence is required to attach liability to the design professional. It has also been adopted worldwide by numerous civil codes, including many jurisdictions in the Middle East such as the United Arab Emirates, Saudi Arabia, Kuwait, Iraq, Egypt, Jordan, and Qatar. The specific wording among the various codes differs, but all mandate strict liability for building defects. The text of the French Civil Code is divided into three books, each of which addresses specific aspects of French law. Decennial liability is codified in Articles 1792 and 2270, found in Book Three of the Civil Code, entitled Of the Different Modes of Acquiring Property.

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As its name suggests, decennial liability lasts for ten years. In France, Article 1792 Code Civil provides, in pertinent part, that a Builder of a work is liable towards the building owner or purchaser for damages, even resulting from a defect of the ground, which imperils the strength of the building or which, affecting it in one of its constituent parts or one of its elements of equipment, renders the building unsuitable for its purposes. This liability extends for ten years from the approval of the works by the building owner. (Art. 2270 Code Civil). By definition, Builder of the work includes any architect, contractor, technician, or other person bound to the building owner by a contract of hire of work (Art. 1792-1 Code Civil). The presumption of liability extends to damages affecting the strength of the elements of equipment of a building, but only where the latter are inseparably linked and an integral part of the works of development, foundation, ossature, close or cover. An element of equipment is considered inseparably linked to one of the works if the demounting, disassembling or replacing cannot be accomplished without deterioration or removal of material from that work. (Art. 1792-2 Code Civil). The parties cannot contract around decennial liability and any contract provision attempting to either exclude or limit decennial obligations is deemed void and unenforceable. (Art. 1792-5 Code Civil). A Builder can only escape liability if the Builder proves that the damages were occasioned by an extraneous event, which is likely a force majeure event or major natural disaster. (Art. 1792 Code Civil). Decennial Liability in the Middle East: In the United Arab Emirates (the UAE) decennial liability is codified by Articles 880 883 of Federal Law No. 5: 1985 (The Civil Code). The UAE federation is comprised of seven emirates, including Abu Dhabi and Dubai, where architects are, with increasing frequency, engaged to provide design services for large, multi-billion dollar projects. In the UAE, if the subject matter of the contract is the construction of buildings or other fixed installations, the plans for which are made by an architect to be carried out by the contractor, the Civil Code imposes strict joint decennial liability on the architect and contractor to the client from the date of delivery of the work. During the ten-year liability period (or longer period if specified by contract), the architect and contractor must compensate the client for any total or partial collapse of the building they have constructed or installation they have erected, and for any defect that threatens the stability or safety of the building. This decennial liability applies unless the contracting parties intend that such installations should remain in place for less than ten years. (Article 880(1)).

The 9th Circuit ultimately rejected the plaintiffs theories and affirmed the District Courts dismissal of plaintiffs case. In so ruling, the 9th Circuit held that an aggrieved person must bring a private civil action under the FHA for failure to properly design and construct within two years of the completion of the construction phase, which concludes on the date that the last certificate of occupancy is issued. This is a favorable ruling for design professionals. The 9th Circuits interpretation of the FHA is such that the two-year statute of limitations period is essentially converted into a statute of repose running from the issuance of certificate of occupancy.

Supreme Court of Oregon Examines Application of Economic Loss Doctrine in Property Damage Case
The Supreme Court of Oregon recently held that the economic loss doctrine did not bar a negligence claim asserted by the purchasers of an apartment building against the general contractor. In Harris v. Suniga, 344 Or. 301, 180 P. 3d 12 (2008), the plaintiffs were the trustees of a trust who purchased an apartment building from an investment company. The defendants built the building under contract with the investment company. Shortly after the plaintiffs bought the building, they discovered substantial water infiltration and dry rot. Plaintiffs filed suit against the defendants seeking $376,000 in building repair costs. The defendants moved for summary judgment, arguing that the negligence claim was barred by the economic loss doctrine. The defendants contended, since the plaintiff Trust purchased the building as an investment, the damage to the building was an investment loss and purely economic and, therefore, the claim was barred by the economic loss doctrine. The trial court granted the defendants motion for summary judgment, but the Court of Appeals reversed. The Supreme Court subsequently allowed the defendants petition for review. In determining the scope of the economic loss doctrine, the Supreme Court explained that, absent a special relationship between the parties, a defendant is generally not liable for negligently causing a strangers purely economic loss when there is no injury to the plaintiffs person or property. Thus, the central issue in the case was whether the plaintiffs damages constituted an economic loss or injury to property. The Court ultimately rejected the defendants assertion that the plaintiffs loss was purely economic. The Court reasoned that, if the defendants were correct, every physical injury to property could be characterized as a form of economic loss for the property owner because such injury diminishes the financial value of the property owners assets. Accordingly, the Supreme Court held that the plaintiffs property damage provided the basis for a negligence action and the economic loss doctrine did not bar the claim.

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Significantly, the obligation to compensate the client exists even if the defect or collapse arises out of a defect in the land itself or if the client consented to the construction of the defective buildings or installations. (Article 880(2)). This is a remarkable departure from the norm in the U.S. regarding responsibility for subsurface conditions. On most U.S. construction projects, the owner hires the geotechnical engineer directly and maintains responsibility for unforeseen or differing site conditions. Thus, the design professional does not have responsibility for ground and subsurface conditions. Under decennial liability, a design professionals responsibility dramatically increases because it effectively assumes the risk for defective or faulty ground conditions. The design professional is, therefore, encouraged to conduct a more thorough investigation of the project site on such projects than it might traditionally perform for domestic projects. The Civil Code requires the client to bring a claim for compensation within three years from the collapse of the building or the discovery of the defect. (Article 883). The date of the collapse of a building is relatively objective and easy to establish. However, the discovery of the defect may be a subjective determination akin to the discovery rule in the U.S., thereby making the timeframe in which the client must bring a claim ambiguous. Design professionals are encouraged to maintain a diligent written document retention program in order to compile documentation to establish the date of the clients discovery of the defect. If the design professional has documentation detailing the date of the clients knowledge of a building defect, the design professional may be able to rely on Article 883 to preclude a claim if it is asserted beyond the three-year timeframe. If the architects scope is restricted to preparing plans and excludes supervision of the execution, the architect will only be liable for defects in the plans. (Article 881). This exception applies if the design is correct and the defect is due to the construction, but architects are cautioned that supervision may be broadly interpreted to include such tasks as approving a contractors shop drawings. Based on this section of the Civil Code, an architect may want to refuse to perform contract administration phase services and insist that the client hire a local architect directly to carry out these services. As with the French Civil Code, parties cannot contract around UAE decennial liability, and Articles 880-883 apply to all design and construction contracts in the UAE, even if not specifically referenced in the Agreement. Since there is no requirement for the parties to mention decennial liability obligations in the Agreement, it is imperative that design professionals research the jurisdictions in which they practice to understand their potential liability. Ignorance of the decennial liability obligations is not a viable defense and liability attaches regardless of the design professionals level of understanding of the applicable law.

Supreme Court of Washington Finds No Damages for Delay Clause Unenforceable

In Scoccolo Construction, Inc. v. City of Renton, 158 Wash. 2d 506, 145 P. 3d 371 (2006), the Supreme Court of Washington held that a no damages for delay clause in a contract between the Contractor and the City of Renton was unenforceable when the Contractor sued the City for damages resulting from delays caused by utility companies operating under franchise agreements with the City. The City retained the Contractor to widen a roadway from two to four lanes. Their contract included the following no damages for delay provision: No additional compensation will be made to the Contractor for reason of delay caused by the actions of any utility company and the Contractor shall consider such costs to be incidental to the other items of the contract. The roadway expansion project necessitated the relocation of existing utility lines and power poles by utility companies operating under franchise agreements with the City. Under these franchise agreements, the City was entitled to require the utility companies to relocate their facilities, at the companies expense, to accommodate construction projects undertaken by the City. When the expansion project was completed, the Contractor sued the City for breach of contract and delays caused by the utility companies. Ultimately, the case was reviewed by the Supreme Court of Washington to decide the application of the no damages for delay provision. At the crux of the evaluation was the validity of the Contractors assertion that the no damages for delay clause was rendered unenforceable by Revised Code of Washington (RCW) 4.24.360 which provides: Any clause in a construction contract which purports to waive, release, or extinguish the rights of a contractor, subcontractor, or supplier to damages or an equitable adjustment arising out of unreasonable delay in performance which delay is caused by the acts or omissions of the contractee or persons acting for the contractee is against public policy and is void and unenforceable. In interpreting the statute, the Court found that the utility companies were acting for the City based on the terms of the franchise agreements. Based on the finding that the utility companies were acting for the City, the Court held that the no damages for delay provision was unenforceable against the Contractor pursuant to RCW 4.24.360 and the Contractor was entitled to recover damages for the delays attributable to the utility companies. This case highlights the importance of understanding how your contract provisions may be affected by applicable law. Here, the City thought it was avoiding any exposure to a contractor delay claim, yet the provision was wholly unenforceable under Washington law. 3
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Conclusion:
In light of the increasing amount of construction

Upcoming Beazley and Industry Events

Beazley Webinar
Beazley conducts quarterly risk management webinars for its insureds. The next webinar will take place on September 4, 2008 and address risk management issues for design professionals associated with Design-Build projects. To be added to our webinar invitee list, send your contact information, including email, to straightanswers@beazley.com.

dollars being spent abroad, design professionals must appreciate the risks associated with working in foreign jurisdictions. It is particularly important for the design professional to be comfortable with the quality of the team that will construct the project and observe the construction of the project, especially where the U.S. based design professional gives way to a local architect to provide construction phase services. Obviously, if construction is shoddy or shortcuts are taken in the field, the chance of a failure triggering decennial liability greatly increases. Likewise, a robust QA/QC for the design is warranted, particularly in light of the magnitude and complexity of the projects being built in places like Dubai. Decennial liability raises significant questions regarding professional liability insurance coverage. Decennial liability is strict liability; therefore, such liability arises without the need for evidence, or even allegations, of the design professionals negligence. In some countries, including France and Egypt, specific decennial insurance is mandatory. Decennial liability goes well beyond the scope of traditional professional liability insurance and design professionals are forewarned that negligence-based professional liability coverage is likely inadequate to cover responsibility triggered by decennial liability. There are insurance products available that provide protection against decennial liability. Beazley has extensive international experience and is available to assist your broker in facilitating the procurement of these types of insurance policies when performing services abroad.

Industry conferences
September 18-21: Society for Design Administration (SDA) Central States Regional Conference, Fort Worth, TX September 25-28: Society for Design Administration (SDA) Eastern States Regional Conference, Atlanta, GA September 25-27: Architectural Engineering Institute (AEI) 2008 Architectural Engineering Conference, Denver, CO September 26-27: Society for Design Administration (SDA) Western States Regional Conference, San Diego, CA October 19-22: October 27-30: American Council of Engineering Companies (ACEC) Fall Conference, Montreal, Quebec, Canada 28th IRMI Construction Risk Conference, Las Vegas, NV

Feedback

We welcome your feedback on the Beazley A&E Reporter. Email your comments, observations or future topic requests to james.schwartz@beazley.com or colleen.palmer@beazley.com.

Contact Information
James Schwartz Beazley Group 101 Federal Street Suite 1619 Boston, MA 02110 Phone: (617) 261 8414 Fax: (617) 261 8441 james.schwartz@beazley.com

Colleen M. Palmer Beazley Group 101 Federal Street Suite 1619 Boston, MA 02110 (617) 261 8412 (617) 261 8441 colleen.palmer@beazley.com

Email straightanswers@beazley.com if you would like to be added or removed from our email distribution list or if you would like to update your email address.
Beazley Specialty Lines 30 Batterson Park Road Farmington, CT 06032 Phone: (860) 677 3700 Fax: (860) 679 0247

www.beazley.com/A&E
The Beazley A&E Reporter is prepared and edited by Beazley Group. The opinions of the authors are solely those of the authors. The Beazley A&E Reporter is published and distributed by Beazley Group with the understanding that neither it nor the editors or authors is responsible for inaccurate information. The information set forth in the Beazley A&E Reporter should not be construed nor relied upon as legal advice and is not intended as a substitute for consultation with counsel. 2008 Beazley Group plc. All rights reserved.

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