Surety Trying to Extricate Themselves from Figg 1

[ImminentCollapse]

I put this here rather than the collapse thread.

Beware of your D/B contract language, arrangements and disclosures I guess. Or, just try to avoid catastrophes.

https://insuranceinsider.com/articl...ue-to-avoid-payout-in-florida-bridge-collapse

IC

 

[TehMightyEngineer]

Thanks for this, if I do get involved in a D/B I'll definitely need to verify this with our E&O provider.

It seems that the design-build aspect is only part of the reason why they don't want to cover Figg. What are these "professional liability exclusions" they reference in the article? Apart from the design-build aspect this seems like the exact reason for having E&O insurance. Only thing I can think is that this wasn't E&O insurance and was just general liability insurance.

Anyone got more details about this?

Ian Riley, PE, SE
Professional Engineer (ME, NH, MA) Structural Engineer (IL)
American Concrete Industries

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[MrHershey]

Not a lawyer, but at least by my reading it's not really design-build that is the issue here.

It's that the insurers are claiming Figg entered into a partnership or joint venture with a construction company without the insurer's knowledge or approval and was doing the bridge work under the umbrella of that partnership or joint venture.

Legal filing is here: Link (PDF)

The thing that jumped out at me (emphasis mine): 'All of damages sought by the claimants against Figg arise out of Figg's acts and omissions as the engineer responsible for the bridge's construction'.

Then add that with the language in some of their endorsements limiting partnerships/joint ventures to architectural, engineering, and surveying activities (notably omitting construction/contractors). I'd tend to guess the insurers are claiming that Figg was only insured for engineering activities and going into the joint venture with a construction company moved them over to the construction side for which their general liability and certainly professional liability would not cover them. From the insurer's standpoint, they thought they were insuring an engineering design company, not a construction company.

Will be interesting to see where it goes.

At very least I would think Figg (or anyone else) going into a joint venture would be wise to review with their attorneys AND insurers to make sure it doesn't jeopardize their coverage. If Figg did that and the insurers didn't take any issue with it, then that should help Figg.

 

[JAE]

MrHershey - good summary.

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[casseopeia]

Can't see the article because I do not subscribe and the free trial wants billing information. Nope, not falling for that.

If you are offended by the things I say, imagine the stuff I hold back.

 

[SteelPE]

Wow, and insurance company that won't pay, who would have ever thought that could happen. They would certainly cash those premium checks though.

I get it, I don't agree with it, but I get it.

 

[IRstuff]

If they did something outside of the boundaries of their policy, why should the insurance company pay?

If you buy E&O as a structural engineer and get sued for electrical engineering work, your insurance company would disavow anything unrelated to your structural engineering coverage.

TTFN (ta ta for now)
I can do absolutely anything. I'm an expert!

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[SteelPE]

IRstuff, that's why I said I get it. Your example is a little on the extreme side as there is meshing between the contractor and design team on construction projects.

I imagine the situation is very complex. How often are project similar to the one in question developed on a design-build basis. I can't see the projects of similar size and nature being developed through traditional delivery methods (design bid build).

I also imagine it's easier for the insurance company to try this tactic than it is to pay out on the policy (6 families and the state). If it works, they save a ton of money, if it doesn't, its a drop in the bucket.

 

[drawoh]

If you buy E&O as a structural engineer and get sued for electrical engineering work, your insurance company would disavow anything unrelated to your structural engineering coverage.

Was this bridge insured for bad electrical work?

--
JHG

 

[hokie66]

It is now a matter for the courts. The insurers will try to limit their liability, but a jury is not likely to be sympathetic.

 

[IRstuff]

According to Travelers and Phoenix, the construction partnership was not insured because it was involved with construction, whereas their policy does not cover construction, nor were they notified about the partnership, and therefore, the bridge was not insured.

TTFN (ta ta for now)
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[hokie66]

They would say that. When that argument is thrown out, they will put forward another.

 

[IRstuff]

Well, that is why they have an army of lawyers on staff.

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[MrHershey]

I imagine the situation is very complex. How often are project similar to the one in question developed on a design-build basis. I can't see the projects of similar size and nature being developed through traditional delivery methods (design bid build).

Seems like JV is the sticking point here to me. Obviously JVs with contractors happen more often in design-build but they’re far from mandatory (or even common, I’d say). My firm has been part of dozens, if not hundreds, of design-build teams. To my knowledge we’ve never been part of of a JV. In fact I can only think of one job I’ve been on where I think any of the design team was on a JV with the contractor and even that one I’m not sure was actually a JV and not just an unusually friendly informal partnership.

They would say that. When that argument is thrown out, they will put forward another.

I’m not sure that argument will get thrown out. At least according to the insurer’s filing, the policy endorsements exclude JVs except for those where all coventures are architecture, engineering, or surveying firms. If that’s true, Figg was in a true JV with Munilla, and Figg never got it cleared like the insurer is claiming, that potentially puts Figg in a rough spot. Will be interesting to see how it plays out.

Would think there’s a non-zero chance this ends up being a weird situation where it’s better financially for Figg for this to be a design flaw rather that a construction issue. With the JV they may be liable either way but probably have a higher likelihood of being covered if it’s a design flaw since that’s what their insurance is actually intended for.

 

[SteelPE]

OK, so what is the difference between a JV and a design-build project? Does Figg profit more from a JV?

 

[JAE]

We contacted our own insurance provider on this question (based on this thread I might add) and the indication is that in a Design/Build we would still be our own entity simply entering into a contract with a contractor or a Design/Build firm to provide engineering services - no problem.

However, if we were to create a Joint Venture - a new business entity where we were combining ourselves as a part of a new thing - sort of like we were temporarily becoming a part of a holding company - then we'd be violating our insurance coverage parameters and this might negate our coverage.

Here's some of our insurance language:
[blue]If, during the Policy Period, the Named Insured acquires a majority of the assets of another entity, creates another entity, or acquires any entity by merger into consolidation with the Named Insured, such entity shall not be covered under this Policy unless the Insured, prior to such acquisition or creation:
1. Gives written notice of such acquisition or creation to the Company;
2. Pays any additional premium required by the Company, and;
3. Agrees to any additional terms and conditions of this Policy as required by the Company.[/blue]

One other response was: [blue]it only matters if your firm becomes a member/owner/partner of another entity.[/blue]


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[JStephen]

It would be kind of surprising if nobody had thought about this beforehand. More to the point, this is one or two insurers trying to un-involve themselves from the issue at hand, but I would have expected that there might be some other coverage by other insurers that DID apply.

 

[MrHershey]

OK, so what is the difference between a JV and a design-build project? Does Figg profit more from a JV?

Design-build basically means a contractor is selected before design is completed for the job and the design team is under the contractor. That's all. It's rearranging the chain of command, has nothing to do with JVs or legal partnerships or co-ownership or any of that stuff.

Sometimes the contractor could have a design team in-house. A prominent example on consumer side would be PV installation on your house. You're usually engaging a builder, but they usually take care of all the engineering, either acquire or assist in acquiring permits, etc. Instead of you engaging an engineer to design it and then have to engage a builder separately. Sometimes contractor will hire out the design team. Sometimes it's a little bit of both.

I'm not sure I can speak to why Figg would want to do the joint venture. It doesn't seem common in my field (buildings), maybe it's more common for bridge firms. I imagine it's more profitable as you have almost an 'ownership stake' of sorts. Perhaps in theory the designer has more control over the finished product since you're a coventure with the guys responsible for building it. But you can open yourself up to more risk as well, as we're seeing. If the legal entity doing the project is Munilla-Figg JV, then all members of the Munilla-Figg JV are going to get sued for any flaws. Which is probably what the insurer is balking at. They're insuring Figg, not the Munilla-Figg JV. Perhaps if it's design related then they end up getting covered down the road, not sure if that's part of this fight or if that needs to be a separate fight.

Moral of the story (and JAE probably already heard this from his insurer): If you're thinking of going into a JV or acquiring another firm, absolutely talk to your insurer and make sure you're covered. And get as much as you can in writing. At very least, take the time to read the fine print of your policy/endorsements and make sure you actually understand it so you know the rules you're playing by.

It would be kind of surprising if nobody had thought about this beforehand.

I used to think that. But since then I've seen so many people sign stuff that they haven't even read or understood that I really wouldn't be surprised at all. Not saying that's what happened here, I have no way of knowing. But Figg certainly wouldn't be the first company to fail to read all the fine print.

 

[SwinnyGG]

With regard to the joint venture- my employer does this. I am not in the structural space but we occasionally have projects where in order for a bid to even be received and evaluated, we have to demonstrate that as the design content provider, we are engaged with whomever will actually perform installation/erection or whatever type of work is required by the bid but is not within our scope of capability.

In some cases (not all) it is a requirement of the bid process that all services required by the bid come from a single legal entity. I'm butchering the legal language a bit but basically we bid on jobs where having a contract with a provider of other services is not enough; the complete contract must come from a single source.

In my experience, the practical difference between being in a "Joint Venture" with a supplier, and just having a contract with that same supplier is nil. The joint venture exists solely to satisfy a specific requirement for our bid to be accepted.

I know nothing of the details of the arrangement between Figg and Munilla, but a similar situation seems plausible, if they were in fact involved in a joint venture together.

I would have to defer to those more experienced in the structural world to know whether or not what I've described above happens frequently, or at all, in that market.