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WCPGW – Limited liability and the Client Architect Agreement

A member has written into What Could Possibly Go Wrong? asking how to fill in the ArchiTeam Client Architect Agreement for limited liability.

 

Dear What Could Possibly Go Wrong?,

We have been using the ArchiTeam Client Architect Agreement and filing in the section on ‘limited liability’ with the term ‘contract sum’.  Another architect that we discuss practice issues with has said that this is not correct and it should be ‘cost of works’. Which way should we go on this?

 

Dear ArchiTeam member

This issue of limited liability is predominantly a question about your cover under the ArchiTeam group policy for professional indemnity insurance. There are also legalities that may develop should a claim be made against you.

As with all practice and contract matters, never take on more risk and responsibility that you have to, it may mean that you won’t have professional indemnity insurance if you do.

Keep in mind all PI insurance policies will not cover you for an amount of liability you contractually agree to which is above and beyond what you would be ordinarily liable for at law. Under the proportionate liability legal regime you should only contribute to a loss to a percentage which equates to your responsibility for the loss.  If you manipulate clauses in client architect agreements where you contract into a liability above and beyond what you would ordinarily carry at law, then you can prejudice your PI Insurer and they may not cover the full extent of your claim.

The smart thing with how to deal with this, as with all matters you’re not sure of, is not to guess.  If you don’t know, best to ask the expert. This is just what What could possibly go wrong has done. We passed on your query to the ArchiTeam insurance broker Greg Hansen from Austbrokers Countrywide.

Greg said that it is common in client architect agreements for there to be a clause which has the intention of capping the liability of the architect in relation to a specific contract. The idea is that the architect can have some certainty as the extent of the liability if things go wrong. It can also assist the architect in ensuring their professional indemnity limit (or sum insured) is adequate for the type of work being done by that architect.

The amount entered into such clauses can vary, some architects use a benchmark of 10 times their fees and for particular contracts an amount can be negotiated between the architect and client. A few tips in respect to these clauses –

They do not always work. An architect can have such a clause attempting to limit its liability and courts have overruled such clauses and held architects liable for amounts above the cap in the contract.

Always enter a specific dollar figure as the cap. Do not write in terms like ”to the value of the contract” because references like this can create debate and argument as what was the exact meaning of the reference to contract value and might render the clause totally ineffective.

Never enter in an amount above the value of your PI insurance – if you agree to an amount above your indemnity insurance you do not have enough cover to pay a full claim with your insurance.

Thanks Greg, we appreciate this being cleared up, now we can get on with being architects.

Peter Finn, architect.
ArchiTeam director.

 

Disclaimer – ‘What could possibly go wrong?’ is not an advice column, it is only general comment from ArchiTeam who are not aware of your circumstances with any issue that you may have. You cannot rely on these general comments, each member must make their own decisions about any action they should take and seek independent advice of their own if they are unsure.

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