April 1, 2014

Avoid inadvertent warranties


People who work in our industry need to be careful about giving advice that goes beyond the scope of their expertise, experience or retainer. This is because the consequences of giving bad (or allegedly bad) advice or opinions can be significant.

If you are a designer or design-build contractor, you will have design obligations. Simply put, a designer is expected to stand behind his or her design. For this reason, from the designer’s perspective, any limitations on the suitability or performance of a design should be spelled out in the contract between the parties, to avoid confusion and properly manage risk.

Yet the risks associated with arguably bad advice go well beyond the scope of the contract between the designer or design-build contractor and the client. In fact, the risks can often be much more significant in these circumstances, because the person giving the advice or opinion will most often not be receiving compensation for the statements in question. Also, in some cases that person might not even be insured for the alleged error or omission.

Know your scope
Designers and consultants will frequently be asked to go beyond the scope of their contracts, for example by providing additional advice or opinions where the design requirements change. This can also occur, however, when the client asks for a comment on something collateral to the contract. For example, an owner might ask the design consultant if she thinks the home builder’s grading plan for the back yard looks good, or if a tree is likely to survive in proximity to a pool excavation, or if the pad for the gazebo construction is sufficient for the job, or if the gazebo would work in the back corner from a design perspective. In these cases, the designer might have a serious problem if the basement ends up flooded, the 300-year-old tree dies, the gazebo collapses causing substantial damage to property or (heaven-forbid) people, or if the gazebo ends up in conservation lands. In each case, it could be argued that the designer gave a warranty that her representation was accurate.

Consider also the situation where you, the contractor, encounter an unforeseen subsurface condition on-site. Your client looks to you to help solve the problem – and you want to help out. Accordingly, you suggest a solution that you think will probably work, and the client gives you the go-ahead. In this circumstance, you, the contractor, have arguably given a “performance warranty,” in relation to your design solution. If it turns out the solution was inappropriate, the client may have a claim on the warranty and against the contractor for the negligent advice or opinion. If the contractor lacks errors and omissions insurance, the negligence would be uninsured.

I’m certainly not suggesting you not try to assist the client when problems arise. There is, however, a world of difference between suggesting an option that the client might want to consider, and inadvertently assuming responsibility for a strategy or solution. For example, there is a world of difference between saying to the client, “Here is a possible solution you might want to consider, but you will have to tell me what you want me to do,” and saying to the client, “Here is a solution that should work,” or even, “Here is a solution that I think might work.” The latter two might be relied on by the client as a warranty of the suitability of the solution.

Where the client insists that solving the problem is a workmanship issue, or a “means and methods” issue, as some owners would describe it, you may have no choice but to stand your ground and formally request written instructions from the client as to how you should proceed, given that the problem or change in the work is beyond your control and responsibility.

Client relationships
It is also important to realize that your relationship with the client might not factor into the equation. In this regard, you might want to say, “I don’t need to worry — my client would never, ever, blame me, or sue me, or otherwise drag me into something.” Unfortunately, you could be both right and (terribly) wrong in your assessment. This is because in many cases it will not be the client’s call as to whether or not you should be named as a party in litigation. Rather, the client’s insurance company will have a subrogated right to pursue anyone the insurance company feels might be responsible for the damage caused. It is also true that an insurance company will often look for contributions towards settlement from anyone who might arguably be liable for the problem at hand.

Suppliers are not immune. The example that comes to mind is the Ontario pool company whose staff member quickly advised a client that a slide sitting in the back of her truck should work without difficulty in a pool the staff member was familiar with (through openings and closing, but not through construction). Although the pool company was not retained to provide this advice, it was held liable when, tragically, the oversized slide did not perform and catastrophic personal injury resulted. In the interests of space, I won’t set out examples of where the inadvertent advice of suppliers in our industry can become problematic — as I am sure dozens can be conjured up by the reader without difficulty.

In the end, ensuring that you and your staff are aware of, and consider, the potential consequences of inadvertent design advice or opinions is important. Often, the business relationship can be maintained while responsibility for the actual decision can be deflected back onto the client. In many cases, particularly where risk associated with the issue might be significant, you and your staff should consider committing the fact to writing that you are not assuming responsibility for a particular decision or approach.
Robert Kennaley has a construction background and practices construction law in Toronto and Simcoe, Ont. He speaks and writes regularly on construction law issues. Rob can be reached at 416-368-2522, at kennaley@mclauchlin.ca, or on LinkedIn. This material is for information purposes and is not intended to provide legal advice in relation to any particular situation. Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.