Architects Drawing More Lawsuits for Malpractice

When things go right, a Los Angeles architect like Roland Wiley can make as much as 8% profit on the fees he receives for designing a building.

These days, however, fully half of that potential profit must go toward insuring that nothing goes wrong.

When Wiley recently designed a fast-food restaurant in Baldwin Hills, his profit on the job was cut in half by premiums on the liability insurance he had bought to protect himself against claims that his design was flawed.

The difficulty of being able to afford the increasingly steep professional liability insurance premiums is not unique to Wiley’s architectural firm.

High premiums have become a burden throughout the architectural profession, and are particularly onerous for small firms--those with fewer than five employees--which, according to the American Institute of Architects (AIA), make up 81% of the firms in California.

Pushed up by the rising number of malpractice lawsuits aimed at architects, the higher premiums have forced many firms to employ defensive tactics, which some architects insist have forever changed the profession.

“Liability insurance is a very sore point in our profession,” said Wiley, a principal at RAW Architecture, an 11-person firm in Los Angeles. “Liability fees are extremely prohibitive.”

As a result of high liability insurance costs, many small, intermediate and even some large firms have changed the way they work. Some architects say they have reduced their roles in overseeing the construction of their projects in the hope that less involvement will mean less liability.

Other architects have refused to involve themselves at all in certain types of projects--such as condominium complexes, which are considered extremely high risk for lawsuits within the design profession. And many carry no professional liability insurance at all.

Known in the profession as errors-and-omissions coverage, or “E & O,” the insurance is a type of malpractice coverage that protects architects financially from negligence in design and supervision during construction.

According to a 1987 survey by insurer Victor O. Schinnerer, one of the nation’s largest writers of E & O, 30 liability claims are filed each year for every 100 U.S. architecture firms.

From the early 1960s to the mid-1980s, he said, the annual number of claims per 100 firms jumped from 12.5 to 42, before declining to 30 in 1987.

Architects are concerned not only about liability lawsuits regarding current projects, but with projects that have been completed for years.

In third-party liability, for example, in which a person is injured on a building’s premises--the architect can be sued regardless of how many years have passed since the building was designed and constructed.

“We bear a large burden that we should not bear,” said Fernando Juarez, president of the Los Angeles chapter of the AIA. “And in most cases, there’s no statute of limitations, so for the rest of our lives, we are vulnerable.”

While insurance rates have stabilized after an upsurge between 1984 and 1987, rates remain high enough to be unaffordable for many firms. Some architects only buy insurance on a per-job basis, passing the cost on to the client.

“I think the appropriate way to go these days is on a per-job basis,” said architect Margo Hebald-Heyman of Los Angeles, who runs her own one-person practice. “This way the owner can pay the cost of the insurance. . . .”

But most small firms have concluded that insurance coverage is costlier than the risk of potential lawsuits--even though a successful claim could wipe them out. Many have decided that the best protection is none at all--based on the theory that the insurance itself attracts lawsuits.

Some architects argue that the only weapons against such costs are legal limitations on the kinds of lawsuits that architects can be liable for.

But lawyers contend that architects, like other professionals, must bear full responsibility for what they design, even if this forces reluctant change on the profession.

“Any time something goes wrong with a project, we are compelled to sue anyone who is involved in putting it together,” said one attorney who has represented several homeowners’ associations in their claims against architects involved in designing and building condominium complexes.

“Then, through the discovery process, it becomes clear who is responsible.”

Claims take many forms, ranging from the mundane leaky faucet to someone slipping on the premises of a building 30 years after it was completed, to something as potentially tragic as a building collapsing when the metal bracing is improperly designed or constructed.

Architects, insurance professionals and lawyers agree that clear cases of errors or omissions by an architect are responsible for only 10% to 15% of those claims filed.

Seventy-five percent of claims filed, they say, are weak and unsubstantiated, with absolute fault virtually impossible to discern.

This leaves 10% to 15% of claims filed in the ambiguous category of so-called “spite suits,” when for one reason or another an owner brings claims against an architect, in some cases merely to delay or avoid paying the architect’s fee, industry experts say.

In any event, some experts say, in one form or another E & O claims appear to be caused by the power of unmet expectations.

“Most of the problems come because buyers think they are buying a Cadillac, but they find they have a Chevy,” said Elliott Gleason, the senior vice president of Design Professionals Insurance Corp., the second-largest writer of professional liability for architects in the United States. “But just because expectations were not met does not create legal liability.”

According to insurance companies and architects, the biggest liability risk comes in the design and construction of the condominium complex.

Gleason said that about 50% of the thousands of condominium complexes and high-density residential projects built in the past 15 years have resulted in lawsuits by homeowners’ associations.

He attributes this, in large part, to the condominium owners’ abilities to organize through their associations.

“The fact of the matter is that condo buyers are willing to sue because they have no personal relationship with the architect,” said James Acret, an attorney and author of “Architects and Engineers, Their Professional Responsibilities.”

“They can easily pool their money to pay for a lawsuit,” he said.

For insured architects, the outcome of professional liability lawsuits has become largely academic. The vast majority of claims are closed without the insurance company making any indemnity payment to the plaintiff.

But the cost of defending the architect is nonetheless passed on in the form of premium increases. And because just the filing of a claim is enough to substantially increase an architect’s insurance premium, the fact that condo owners frequently sue is enough to scare the architect away from such projects.

“The moment an attorney opens up a file, $5,000 has been spent,” said R. D. Crowell, president of R. D. Crowell Insurance in Costa Mesa. “And $5,000 is the approximate deductible per claim for most small firms.”

Many architectural firms now consult with their insurer before accepting a job. This enables a firm to avoid projects that may be risky, and thus too costly to insure.

“When I first became an architect, I couldn’t believe that insurance companies were advising me not to get involved with designing condos,” Wiley said.

“But let’s face it, for an architectural firm, it’s not a good business decision to work on certain projects. The fact of the matter is that condos will drive the premium up. The people who do these projects either pay a large premium, or they ‘go bare,’ and hope for the best.”

Going bare, a commonly used expression for doing business without liability insurance, is the paradoxical approach that many firms have chosen to protect themselves, in essence, by exposing themselves completely. This is done in the belief that being uninsured takes away any incentive for profit by would-be plaintiffs.

According to a survey conducted this year by the AIA in Washington, D.C., 60% of the architectural firms in the United States with fewer than five employees go bare. Firms that fall into that category make up 93% of the architectural firms nationwide.

“If people know you have insurance they will sue everybody if anything goes wrong, and no building is perfect,” said one architect who was forced to close the doors of his well-established two-person firm two years ago after losing a liability lawsuit that he contends he and his partner should not have had to bear responsibility for.

“Needless to say,” he added, “I’m very bitter. I don’t have insurance anymore, I can’t afford it, and chances are I couldn’t get it even if I could afford it.”

There are fewer than 15 writers of professional liability insurance for architects and engineers in the country, Crowell said. And of those, many refuse to write professional liability for small firms.

“A one-man practice is an accident waiting to happen,” Crowell said. “The architect can’t possibly do all of the things a business should do and practice safely.”

Some architects claim that the precautions they are expected to take to avoid being sued are not only unreasonable, but in many cases impossible, and in all cases, forcing change on the profession.

“We’re being asked to insure the uninsurable,” Los Angeles architect Martin Gelber said. “Architecture is a science of the study of fine arts, and yet when I recently designed an emergency room for the UCLA Medical Center, I was expected to be responsible for testing medical gasses.”

“Architects now need to pay for constant double-checking of things,” said Gelber. “Architects are intimidated for many reasons. What we’re paying for is not errors and omissions, but fears and submissions.”

In the name of good business and risk management, architects have begun to shun certain projects altogether, and to reduce potential liability in the projects they do take on.

Some architects say that while they used to observe and advise the contractor during construction, this is no longer the case. Some have scaled their role down largely to one of observation, and even that is limited.

“Often architects visit the construction site only once a week for observation,” said one Los Angeles architect. “In that time they can’t possibly catch all the details of how the building is put together.”

Said author and attorney Acret: “Architects used to be master builders. . . . Now they are just master designers.”