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Liability and Performance Based Design

Liability and Performance Based Design

Liability and Performance Based Design

(OP)
Question out there for the owners/self proprietors/etc. How do you handle performance based design with liability insurance? I don't hold a policy myself (I have a a few years to go before I strike out on my own), but I'm curious about the impacts.

In a recent lunch-and-learn session we discussed professional liability insurance and what it does and doesn't cover. The general lesson I took from it was this: they cover to the standard of care, so don't make any extra promises. Essentially, if you tell your client that you'll give them a building that will be better and stronger than the code requires (read: standard of care), you're on your own if anything goes wrong. Is this true in others experience/knowledge?

There's a growing desire for better and more resilient structures, particularly in the face of growing concerns over natural disasters (think the Sand Palace in Mexico City Beach, Florida). Shortly after that happened, I had a client request that their house be able to survive a category 5 hurricane. I talked her down from that one, but it I have a feeling its something that will be happening more and more. How are people providing the desired level of service while still maintaining a sound level of protection from their insurance carriers?

RE: Liability and Performance Based Design

By designing anything you need to meet the minimum standard for the jurisdiction aka the building code, which indicates the minimum performance requirements for the expected loads. If you want to design to exceed code, that is extra cost for the client for the increased performance. They will need to understand the benefit of the additional cost to the increased performance requirements. None of this exceeds the standard of care that your competitor would do to meet the new requirement.

If you want to offer designs to withstand a cat 5 hurricane you indicate this as a owners requirement for the design basis. The design criteria for wind load is then documented as the cat 5 speed. Your professional errors and omissions covers the way you implement the adjusted wind speed into calculating the material required to withstand the increased loads. You may also want to include a resistance to a quantifiable flying debris, given that everything around this house has already failed and the wind is now across open ground which previously had buildings.

You are not exceeding the standard of care if you are going to do the same calculations as your competitors would for increased performance to hurricane loading with the design and building costing more. So the sales pitch is you know how to offer designs for category 5 hurricanes the same way as your competition.

You would exceed the standard of care if you claim your design and building costs to resist hurricane winds will be better than your competitors. So the sales pitch is you will design for category 5 hurricanes better than your competitors.

RE: Liability and Performance Based Design

(OP)
Thanks, GeoEnvGuy. That makes sense. Though it would have clearly define designing to a Vult = XXX, which is roughly equivalent to a category 5 hurricane. Saying it would withstand a cat 5 hurricane could be misconstrued as a warranty or guarantee, and we certainly don't that.

RE: Liability and Performance Based Design

A quick read of my policy documentation shows no similar exclusion to what you are describing. Never the less, boilerplate contracts often establish that the work completed will be done to a reasonable industry standard of care. That essentially limits yor client from expecting anything above and beyond. That standard of care is rather independent of the boundary conditions of our work, and our insurance is generally concerned with errors or omissions made during the course of our work. If you made the error of reading the wrong climatic data for your building site, that would be an error. If you consciously make the decision to exceed the typical climatic data due to site-specific conditions (or another reason), then that's you exercising your professional opinion. So long as you justify the reasons for doing so, it should not be considered an error and I would think it would be very defensible.

RE: Liability and Performance Based Design

This is an interesting line of thought. In the structural world, a performance based design (PBD) often implies a larger scale promise to the client. And a larger scale promise to the client translates right into greater risk exposure for the consultant and his insurer. The actuaries don't miss much so, eventually, I suspect that insurance rates will start going up for projects designed using PBD. Three examples:

1) Data centers in high seismic areas are often designed using PBD. The idea is that the contents of the building are worth an order of magnitude more than the building itself so they don't want any problems with respect to any earthquakes that might occur within the next 50 yrs or so. But, then, if a consultant designs per PBD and something does go wrong, they could potentially wind up getting sued for a an amount vastly in excess of the building cost.

2) High-rise concrete condos in high seismic areas often use PBD to dodge the ASCE7 requirement for dual lateral systems. This, in an effort to save money by sticking with flat plate designs rather than needing moment frame beams. It is conceivable that, after a seismic event, it may become apparent to insurers that tall, PBD designed buildings are more likely to cause damage and injury than their non-PBD counterparts.

3) Design for occupant comfort under wind vibration is gradually heading in the direction of PBD. Effectively, a consultant designing with PBD is making the client a promise that they can build cheaply while still not having occupant comfort issues at the 120 th floor. And few folks can afford tow lawyer up in a hurry like the owner of a NY high-rise penthouse or, for that matter, a NY high-rise developer.

Lags in insurance premiums for these kinds of reasons are nothing new. As I understand it, building envelope engineering only exists in it's current form because the economic impact of Vancouver BC's leaky condo crisis exceed that of Chernobyl.

RE: Liability and Performance Based Design

(OP)
KootK - thanks for reviving this. I think you got to the heart of what I was trying to bring up better than I did (nothing unusual there). I actually just came across the notes from the the seminar this weekend while cleaning up my desk. The insurance broker had specifically said that any warranty or guarantee is NOT covered by the policy. In other words, when we do a design we have to officially say "we did it at least as well as the average structural engineer in the area - can't say if that's good enough or not." That probably varies by policy and carrier - perhaps that carrier is ahead of things.

Performance Based Design is exactly where I was going with this - the idea of defining an event outside of the norm (or a method significantly outside of the norm to achieve a normal outcome) and saying "yes, it will do that."

RE: Liability and Performance Based Design

Yeah, this is one of those subjects that's unfortunate in terms of placing it in the right category here. In terms of participation, this absolutely should have gone into Structural General. On the other hand, Business Practices is exactly where the mods would want this.

Part of what makes me not enjoy paying insurance premiums is that I feel as though I am in near perpetual conflict with their guidelines. And that, mostly, because they don't really understand what we do. For me, a salient example is my precast work which is about 1/3 of my current revenue. There's a question on my policy application that goes:

Q: List all residential condominium projects in which you've participated and their constructed value.

A lot of my projects are precast transfer structures where condos get built over top. I get what the insurer is getting at of course. The condo projects are notorious for envelope issues and, therefore, lawsuits. My precast work will have nothing to do with those lawsuits but, if I list $200M of this kind of work, I'll suddenly not be able to afford insurance.

I had to get an exclusion built into my insurance that actually renders me uninsured for the precast (I know...). For me, it's the difference between a $35K insurance premium and a $5K insurance premium. And no, the precast doesn't bring in enough revenue to make it right.

I found this thread because I made a purposeful effort to check out some of the threads that you initiated. You know your stuff and write exceptionally well. I was curious to see what you had to say when it was you steering the ship.

RE: Liability and Performance Based Design

Quote (phamENG)

"we did it at least as well as the average structural engineer.."

Even that is riddled with semantic complexity. What doe it mean to "do it as well" in our field? In some respects, doing a PBD probably means doing it better. Or, at the least, using more advanced methods. But, then, that "better" engineering was probably done to reduce structure and structure costs. So, in that sense, a PBD building may well be more prone to performance issues than a non-PBD building.

RE: Liability and Performance Based Design

(OP)
Very true. To try for the spirit of what the insurance company is saying, is there a way to do a PBD but not guarantee the performance? Doesn't seem like that would work too well.

(And thank you for the praise - I don't have a ton of experience, but I've managed to pick up the occasional nugget of information and I try to share them when I can.)

RE: Liability and Performance Based Design

It would make for a fun clause in a client contract: "We'll give PBD a go but, at the end of the day, you get what you get". A sales strategy worthy of Don Draper.

RE: Liability and Performance Based Design

@phamENG...meeting the requirements of the building code and meeting your locally defined standard of care are two different things.

The standard of care is basically what other competent engineers practicing in your area under the same conditions would do.

RE: Liability and Performance Based Design

(OP)
Thanks, Ron - I agree. To dig a bit deeper into that, can meeting the building code and the standard of care diverge? In other words, if other competent engineers practicing in my area always say to use 50% of the UDL load for shear connections and it results in an overloaded connection because the actual load wasn't quite uniform, do I get in trouble? I did no less than the other competent engineers in the area, but a connection in my design does not meet the building code requirements. (I realize my example is a stretch - I haven't had enough coffee to come up with something better. Please focus on the intent rather than the probably flawed specifics.) I have not (yet) been sued or otherwise witnessed a court proceeding regarding a structural engineering case, so I'm trying to clarify the conjecture, anecdotes, and advice I've been given about how such things are decided.

I think I muddled things up by bringing standard of care into it. Though perhaps the confusion comes from the insurance company's lack of understanding about the interplay between the codes, standards of care, and the growing field of performance based design as KootK was saying. The confusion probably grows even more within our community about what performance based design is. This may be worthy of a new topic, but I was doing some reading last night and it muddied the water more than it cleared it. There's little explanation about just how PBD comes about. It's still not all that popular in my neck of the woods - we have pretty low seismic activity and lateral designs are dictated almost exclusively by wind. Maybe that has something to do with it.

RE: Liability and Performance Based Design

As Ron said, its all about what "a reasonable engineer would do". If you design a data center or a hospital a reasonable engineer will design to a higher level, and your insurance will cover that.

RE: Liability and Performance Based Design

(OP)
glass99 - right, but that's accomplished by assigning a higher risk category in accordance with the code. You're not promising a certain performance or providing a guarantee.

RE: Liability and Performance Based Design

@phamENG: I would only see a liability issue with PBD if you failed to advise your client that their extreme performance requirement was not realistic.

RE: Liability and Performance Based Design

I think it's important to recognize that though PBD is a higher degree of design, it doesn't necessarily change the standard of care. Designing for hire loads than required or doing fancier analysis than most would do is not enough to impact the standard of care. You would have to be guaranteeing better or the best performance, that's when your insurer is going to bail on you. You should never guarantee, warrant, or promise a certain level of performance ever, regardless of whether PBD is involved or not.

RE: Liability and Performance Based Design

This sort of issue comes up in equipment all the time, since equipment is often sold based on performance, 0.001% accuracy, etc. But, it's also much easier to demonstrate the performance, since you can send your equipment and get it tested by labs with traceability to NIST. Also, in many cases, the customer gets a say on how the performance is bought off, i.e., as a first article test, or production acceptance test, and that's somewhat tempered by how much the sell price is.

For one-off structures, the sell off of performance can only by analysis and limited testing, either with witness samples, or models. For my industry, we have design reviews and qualification/acceptance tests. The former are during the design phase, and the customer gets to briefed on our design approach and our analysis of why it will meet its performance requirements. The latter are after it's been built, and the testing needs to be sufficiently comprehensive and traceable to the original design analyses, if there are no direct tests for demonstrating compliance. It seems to me that if the customer is sufficiently knowledgeable, or have subject matter experts (SMEs) that can review your design for performance and compliance to code, and they accept the final product as being compliant to requirements and code, then that leaves E&O issues where things didn't get implemented per design, or there were undetected flaws in the design. But, you need to have sufficient tools to analyze the design and be confident that it will meet its performance requirements.

TTFN (ta ta for now)
I can do absolutely anything. I'm an expert! https://www.youtube.com/watch?v=BKorP55Aqvg
FAQ731-376: Eng-Tips.com Forum Policies forum1529: Translation Assistance for Engineers Entire Forum list http://www.eng-tips.com/forumlist.cfm

RE: Liability and Performance Based Design

(OP)
MrHershey -

I think there is a sort of implicit promise that a structure designed by a licensed engineer will perform at least as well as a comparable building designed and constructed in accordance with the building code by other competent engineers in the area. This is what the standard E&O policy will cover as I understand it, and as I think we've all agreed. Otherwise, you'd be implicitly defrauding your client by taking their money and giving them a cartoon on your drawings.

So how do you do PBD and not guarantee performance? You're defining the performance that your structure must meet, and then designing it to meet it (as opposed to meeting a checklist of isolated requirements in the code that lead up to some difficult to quantify global 'performance'). So now the the implicit promise is that a structure designed by a licensed engineer will perform as stated, and this will be accomplished through an analysis and testing applied in a manner as skillfully and thoroughly as other competent engineers in the area would apply them.

So...we agree that standard of care has nothing to do with it. It shows up in essentially the same form in both cases. But it feels like PBD, by it's very nature, would run afoul of the "no guarantees, warranties, promises, etc." rule set down by the insurance folks. I say this because the building code does not specify performance. There are a few things - local deflection criteria, drift limits, etc., but for the most part it is based on keeping people safe in the built environment. There is no global performance goal identified in the code, so you can't really get sued for it - or, if you do, the insurance companies must be pretty confident they can win. But by setting a global performance goal, you've implied that your structure will meet it.

Has anyone here done a true PBD? How did it impact insurance, or did you think about that aspect while planning/bidding the project?

RE: Liability and Performance Based Design

Until I landed upon this thread, I'd never once considered an interplay between PBD and my insurance.

RE: Liability and Performance Based Design

(OP)
IRStuff - thanks for offering that perspective. I hadn't really considered it in terms of manufacturing performance. I think the biggest trouble is that in the A/E consulting world - we're typically the SME's for the owner. So we have the responsibility to both provide the design and advise the owner on its acceptability. There are exceptions - government bodies or large industrial clients often have engineers on staff - but they're rare. On big projects a 3rd party may be contracted to do a design review to make sure nothing was missed, but that doesn't always happen.

RE: Liability and Performance Based Design

Quote (phamENG)

So how do you do PBD and not guarantee performance? You're defining the performance that your structure must meet, and then designing it to meet it (as opposed to meeting a checklist of isolated requirements in the code that lead up to some difficult to quantify global 'performance').

In part because performance is dictated by a lot more than design. I didn't build the building. I didn't procure the materials. I didn't independently verify the material strength. I didn't maintain the building. Even with design, I didn't design the architecture, the foundations, the mechanical systems, etc.

Even within the structural realm, I designed for a specific threat, a specific set of time histories that were generated by a (hopefully) expert in the field of geotechnical engineering and ground motions. What if the earthquake that actually hits the building is not similar to the time histories that I designed to?

If I 'guarantee' that a building will perform a certain way, I'm taking responsibility for a lot of things that are outside my control and insurance won't cover that.

And yes, I've been involved in a true PBD. I don't believe it affected our insurance at all.

RE: Liability and Performance Based Design

Also wonder if this is part of the confusion:

Quote (phamENG)

Essentially, if you tell your client that you'll give them a building that will be better and stronger than the code requires (read: standard of care), you're on your own if anything goes wrong.

That is not the 'standard of care'. Designing for higher than the code requires does not elevate the standard of care. If it were then every engineer out there not designing everything to a DCR of 1.0 or assuming loads higher than they actually need to be is elevating the standard of care and in theory invalidating their insurance.

The 'standard of care' varies by jurisdiction but typically is something along the lines of: exercise a similar level of judgement, knowledge, and expertise exercised by engineers with similar experience in similar situations.

If you are asked or required to do a PBD and do so with the same judgement, knowledge, and expertise of other engineers experienced in PBD would use, then you're still meeting the standard of care.

Now if you claim to be the best at PBD and can guarantee that your building will do better in an earthquake because of your expertise, then that's above the standard of care. Most engineers aren't the best, so by claiming you are you're elevating the standard from 'average' to 'best' and insurance won't cover that.

RE: Liability and Performance Based Design

Seems to me that design "conditions/assumptions" are similarly dealt with in the aerospace world. We design to specifications which detail the environments that the product needs to operate in, and we test to those conditions, albeit, we do not necessarily test to arbitrary combinations of conditions, i.e., EF5 tornado with 1-percentile hottest day while traveling at max speed cross-country.

Likewise, it seems to me that you're designing to some level of disturbance, be it rain, flood, wind, or seismic, which are detailed in your design analyses and reports. Then, that's what your design is supposed to withstand and that's what's sold to your customer, not some nebulous "better" than code XYZ. I would think that guaranteeing something as "better" than code XYZ would almost be unethical, since it is nebulous and you can't adequately define what "better" means. It seems to me that your customer can and may have "care-abouts" such as flooding, or seismic, or fire, for their particular needs that you can design to, and the conditions can be clearly stated in the contract and design documentation.

At the end of the day, I would think that designing to code isn't fundamentally that different than designing to some level of performance; there are cases where code assumes 100-yr flooding conditions, or somesuch, and those conditions occurred 3 yrs in a row, but no one gets to sue the designer for poor design. So, if you design to withstand EF4, and an EF5 lands on your building, there's really no basis for a claim.

TTFN (ta ta for now)
I can do absolutely anything. I'm an expert! https://www.youtube.com/watch?v=BKorP55Aqvg
FAQ731-376: Eng-Tips.com Forum Policies forum1529: Translation Assistance for Engineers Entire Forum list http://www.eng-tips.com/forumlist.cfm

RE: Liability and Performance Based Design

My company's solicitors ran a day course to introduce engineering proposal/project managers to certain issues that tend to affect consulting engineers. For standard of care, the issues were essentially around inadvertently raising the standard of care through loose use of 'sales' language. The standard of care is typically 'professional' but, if our proposal says that "our team of experts will complete the design quickly", we've raised it to expert standard of care. More likely to lose in court and a chance of not being covered by insurance. "Industry leading" etc are a similar story; keep it bland. The solicitors weren't too fussed with what we did technically, just how we sold it.

RE: Liability and Performance Based Design

Quote:

I hadn't really considered it in terms of manufacturing performance. I think the biggest trouble is that in the A/E consulting world - we're typically the SME's for the owner. So we have the responsibility to both provide the design and advise the owner on its acceptability.

The same is true in every segment of engineering. In automotive consulting we have seen quite a lot of growth with electrification and autonomy. As customers (smaller OEMs) started proposing projects with these technologies, we've had to hire SMEs and/or outsource portions of these projects to provide the same standard of care as our competitors. The basis of the standard of care is successfully meeting every detail of the customer's performance spec as any competent competitor would. Anything not explicitly specified is expected to done in a professional manner, so we have to rely heavily on SMEs leveraging experience to define "professional manner." Failure to meet every requirement can result in lawsuits. If there isnt an SME on staff and a lawsuit occurred bc a requirement wasnt met, I'd fully expect the insurance folks to laugh while denying the claim.

Ultimately, we can only charge externally for engineering that which we have experience in. Everything else we must hire out or face the consequences.

RE: Liability and Performance Based Design

It's also worth noting that PBD has its own set of guidelines (PEER / LATBSDC) aimed at establishing the standard of care for such designs, and independent peer reviews are required to ensure that engineers meet that standard of care.

RE: Liability and Performance Based Design

(OP)
Thanks, everyone. I do understand the difference between standard of care of performance based design. My initial wording wasn't clear - thank you to those of you who helped me clear it up in subsequent posts.

I'll keep reading about performance based designs and how the methods for defining performance have been developed and how they are implemented - and what the expectations are for regarding that performance. Thanks, Deker, for the references to PEER and LATBSDC. I'll look them up and see what they have to say.




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