As a design professional, it’s important to know exactly what risks you face in the location that you practice. Implied warranties are a risk in some jurisdictions and can have major consequences.

Under an expanded liability, an implied warranty can change who can bring a claim against you and what damages they may recover. Without the right knowledge and contract protections, it could put your career and practice at risk.

Here’s what to know.

Jurisdictional Risks

“Location, location, location.” is an oft-repeated motto in the real estate world, as location impacts everything in real estate. If you were to craft a similarly important motto for architecture, engineering and design, “Jurisdiction, jurisdiction, jurisdiction.” would be a strong contender. This is because the laws of a particular jurisdiction impact not only the work you do but the risks you face.

As many design professionals know, some jurisdictions restrict recovery of an economic loss to breach of contract claims, while many other jurisdictions allow claims under a negligence theory. In a negligence claim, a third-party stranger who has no contract with the architect or engineer may be able to recover monetary damages. Yet such claims are only possible in certain jurisdictions. In others, they lack standing.

A similar situation exists with implied warranties. A design professional can be sued in some jurisdictions only for the breach of an express warranty. In others, claims for implied warranties are allowed. Without knowing which rule applies in your jurisdiction, you face an increased risk by not controlling the risk of a potential exposure.

Claim Examples

Several cases illustrate the risk of implied warranties.

In the case of Tommy L. Griffin Plumbing & Heating Co. v. Jordan, Jones & Goulding, Inc., the South Carolina Supreme Court found that a plumbing contractor could bring its claims of professional negligence and breach of implied warranty against an engineering firm which had contracted with a county to design and oversee the construction of a water trunk.

The claim arose after the project encountered numerous problems. Initial construction was delayed and plans had to be redesigned after additional sewer lines and an asbestos fill area were discovered. Then during construction, the engineer requested valve by valve pipe testing, ordered a work stoppage over construction conditions, and took other actions that required the contractor to hire its own experts to consult on the nature of the contract and the management of the project.

The county compensated the contractor according to its contract for extra costs the county agreed were caused by the county. However, the county refused to pay for the contractor’s added expense resulting from the engineer’s actions. After lower court decisions in favor of the engineer, the contractor appealed to the South Carolina Supreme Court which ruled in its favor.

The Court wrote that the engineer:

“owed a duty to the contractor not to negligently design or negligently supervise the project”

and recognized that if a party:

“furnishes plans and specifications for a contractor to follow in a construction job, he thereby impliedly warrants their sufficiency for the purpose in view.”

In a separate case, North Peak Construction, LLC v. Architecture Plus, Ltd., the Arizona Court of Appeals found that an architectural firm could be sued for breach of implied warranty when it provided faulty plans to a homeowner for use by that homeowner’s residential contractor to construct a custom home.

The claim arose over a hillside residential lot with a picturesque view. The lot was originally owned by the residential contractor, who hired the architect to design a home that would maximize the property’s unique vantage point overlooking the city. The architect produced preliminary plans for the home’s construction, and the contractor sold the land and plans to a buyer. The buyer then entered into a separate contract with the same architect to further customize the plan. The buyer then hired to contractor to build the home. However, halfway into construction, the contractor realized the plan oriented the home toward a water tower, and not the view. The building had to be demolished and rebuilt at the contractor’s expense.

The residential contractor sued the architect for its economic loss, but a lower court ruled against it for failure to state a claim upon which relief can be granted. But on appeal, the Court of Appeals reversed the decision, finding in case law that:

“In ruling that the trial court erred in granting the motion to dismiss, [the Arizona Supreme Court] held that a contractor need not be in privity with an architect to sue the architect for negligence and breach of implied warranty… The court recognized that the implied warranty given by design professionals is ‘that they have exercised their skills with care and diligence and in a reasonable, non-negligent manner.’”

The Court of Appeals also found that the contractor may be awarded attorneys’ fees from the architect if its remanded claim is successful at trial.

Contract Protection

For architects, engineers and other design professionals, where you practice your profession impacts your professional risk. In jurisdictions that allow implied warranty claims, the risk will be higher than in those jurisdictions that do not. However, it’s generally impractical to uproot your firm and move to a different jurisdiction, which is why good contracts are key.

Some of the risk associated with implied warranties can be controlled with well-written contracts. Incorporating an express disclaimer of any such warranties can minimize your expanded liability exposure in such a jurisdiction. With such high stakes, getting professional help on your contracts is a must. With coverage from the Lockton Affinity Architect and Engineer Insurance Program, complimentary contract reviews are an included benefit for policyholders to help mitigate these risks.

However, even with excellent contracts and exemplary work, it is still possible for a design professional to face a lawsuit from an unhappy client or third party. Professional Liability Insurance is designed to protect you from this risk. With our coverage, you are protected from claims alleging that you have negligently designed, supervised or otherwise exercised your professional skills on a project in a negligent manner. Coverage can protect you whether the claim against you is true or not, and can be used to help pay for a legal defense, settlements, judgements and other associated fees.

To find out what our coverage will look like for your firm, request your indication online and one of our insurance experts will reach out to discuss your needs.