Powell Trachtman Logan Carrle & Lombardo

Design Professional's Practice Bulletin

Volume 2, Number 2 — October 1998

This Bulletin addresses recent developments affecting Design Professionals as well as business concerns as important as the specific professional and technical issues they face.

Editors: Neil P. Clain and Richard J. Davies

Introduction

Structural elements of a building collapse during construction, injuring several workers and substantially delaying project completion; a gas line is fractured during excavation, leaving neighboring homes and office buildings without heat for several days in February; new roof trusses fail on a recently completed warehouse following an unusually heavy snowstorm, causing substantial damages to the contents of that warehouse: What do you do when the media, the contractor's project foreman, or the owner's counsel calls?

Information control, as well as information gathering, investigation, and notffication of appropriate entities (e.g., insurance carriers) is critical to controlling the attendant risks which flow from such disasters.

The following article which we have prepared for other publications provides an information management and control approach, and a general risk management process to employ, when disaster strikes.

Are You Ready For A Major Project Disaster?

By Arthur T. Nielsen, P.E.
Erdman Anthony Associates, Inc.

Gunther 0. Carrle, Esquire
Bruce D. Lombardo, Esquire
Powell, Trachtman, Logan, Carrle & Lombardo, P.C.

Most design firms today participate in loss prevention programs and make those programs available to their employees. Those programs provide a useful tool for reducing the number of claims that arise and for minimizing the potential financial impact when a claim does arise. However, those programs typically do not provide information for how a firm and its employees should proceed when a claim arises. Because most claims that arise are relatively routine, they do not precipitate any media attention or public notoriety. As a result, design firms involved in such a claim have ample time to contact their professional liability insurance carriers and their counsel and thereafter begin the process of investigating the loss.

The catastrophic loss, however, is far from routine and the consequences flowing from the lack of a proper plan for how the firm and its employees should proceed immediately after the occurrence of such a loss are more dramatic. What this article will do is to provide you with guidelines to prepare a formal plan for handling a catastrophic loss in the unfortunate event that one occurs on a project in which your company is involved. It is not the intent of this paper to supplant the immediate involvement of your counsel, your professional liability insurance carrier and the forensic consultants retained to assist your firm. Rather, the guidelines discussed will serve to minimize the detrimental impact of the events immediately following the loss and facilitate the interaction between your firm and the team of experts retained to assist you in controlling your loss.

What Makes A Catastrophic Loss Unique?

By its very nature, every catastrophic loss has the potential for embroiling the design professional in complex litigation with a significant financial exposure. In our experience the catastrophic loss has unique characteristics that stand in marked contrast to the more routine losses that face most firms. Indeed, unlike a more routine loss, the aftermath of a catastrophic loss is characterized by:

an uncontrolled flow of incomplete and inaccurate information;
a rapid and continuous change of the accident scene;
the presence of third party personnel and investigators; and
an immediate need for the design professional to assist the owner in abating any continuing danger.

Each of these characteristics, if not properly controlled, has the potential for creating misinformation which will be the linchpin for involvement in long term and costly litigation. Clearly, even if these characteristics are properly controlled, it may be impossible to avoid litigation. However, the failure to address these issues immediately after the occurrence of a catastrophic loss will almost certainly increase the cost, duration and adverse impact on the design firm arising from the loss.

Coordinator

Although the notion has become somewhat of a cliche, it is essential that a senior member of the firm be assigned to be "in charge" when a catastrophic loss occurs. Ideally this person should be a senior member of the management of the firm whose assignment to this role is made and announced before a catastrophic loss occurs. The Coordinator need not be involved with the project. Indeed, because of the additional responsibilities described below, the Coordinator should not be on the project team so that he or she can maintain some independence and objectivity. The person selected should be independent, a good manager, a good listener and someone who is able to speak on behalf of the firm with authority.

The Coordinator should have the overall responsibility for the firm in connection with the loss. Those responsibilities include:

providing necessary notifications
controlling and coordinating the dissemination of information
controlling and coordinating the collection of information
controlling and coordinating the investigation of the loss
conducting regular internal briefings
working with counsel to protect confidential information.

All communications about the loss should take place through the coordinator. In particular, efforts by government agencies such as OSHA to interview the firm's personnel should be arranged through the Coordinator.

Notification

Frequently, the chaos that surrounds a major loss results in a failure to notify other individuals or entities that need to know about the loss to help protect the firm's interest. Insurance carriers should be an initial point of notification. In the case of certain insurance carriers, immediate notification will activate the creation of a loss prevention file and permit the retention of counsel and other experts to assist in the investigation of the loss. Moreover, where the firm has an existing relationship with approved counsel, an immediate contact with that attorney will provide helpful information and assistance on how to proceed with the specific issues and problems presented by the loss.

It is also critical that the firm's home office be notified. Where a loss generates significant third party and media interest, it is not unusual for efforts to be made by third parties to contact a design firm's home office. An early call from the local office to the home office alerting it to the problem can give that office adequate time to prepare a response and brief home office personnel.

The Control of Information

In our view, the primary objective of the design professional after being notified that a catastrophic loss has occurred must be the control of information. A catastrophic loss promotes a tremendous demand for information. The requests for information are directed to anyone who is available. Lower level employees who have incomplete or inaccurate information or who for other reasons should not be the firm's spokesperson are frequently called upon to distribute this information.

The detrimental consequences are obvious. Where the information requested is of a type that is necessary to help mitigate the consequences of the failure, inadequate information can make the loss more severe, create a separate basis for liability and increase the firm's financial exposure. Even where the request for information is a simple and seemingly innocuous request for a description of the loss, an inaccurate or misleading answer can create liability issues that increase the likelihood the design professional will be brought into an action or certainly make it more difficult to favorably terminate the action.

An example of the type of simple comment that can lead to serious consequences occurred several years ago after an electrocution that resulted in several fatalities. After the scene was secured and the immediate danger abated, an owner's representative asked the design professional's field representative whether the project specifications addressed the issue of de-energizing power lines. The field representative (who coincidentally had only been assigned to that project for one day to replace an absent employee) opined that there was a specific provision dealing with power lines in the specification. The specifications in fact were silent on the topic as they should have been given the design professional's limited scope of service. That conversation was recorded by the owner's representative and ultimately formed the basis for lengthy inquiry by the attorney retained by the estates of the accident victims. Ultimately, the courts agreed that dismissal of the design professional was appropriate. However, the employee's careless comment added several years and many thousands of dollars to the process of obtaining dismissal.

The guideline to be followed is simple. Immediately upon the occurrence of a catastrophic loss, the free flow of information and commentary must stop. The firm must appoint a single point of contact ("Information Coordinator") who should be a senior member of the firm. That individual is responsible for obtaining all information necessary to respond to an inquiry and for making the response. Where a dialogue is required between project personnel and individuals outside of the firm, the firm's Information Coordinator should be present. All personnel should be advised in advance that upon the occurrence of a major loss they should not provide any comment and direct all inquiries to the firm's Coordinator, except where immediate communications are absolutely necessary to assist in abating any continuing danger.

A second consideration for dealing with damaging information is the need to control rumors inside the firm. While many firms attempt to shield their employees from information regarding the firm's involvement in a major loss, we recommend the opposite approach. Where there is a large loss, particularly one which would receive significant media attention, the employees should be advised of the basic facts surrounding the loss. To this end, the Coordinator should conduct regular internal briefings with personnel so that speculation and rumor generation is kept to a minimum.

Direct contact between employees and third party investigators is perhaps the most difficult to control. All employees should be advised to direct all inquiries to the Coordinator. Where employees are asked, or subpoenaed, to provide statements, the firm should offer to provide counsel at the firm's expense to consult with the employee and accompany the employee to the meeting. Statements to non-governmental investigators not representing the firm's interest should be delayed until some basic information about the loss has been obtained and the employees have been debriefed.

Information Gathering and Investigation

The period immediately following the loss is critical to the process of gathering information both relating to abating any continuing danger and to the process of mitigating the potential for a damaging claim. The claim scene at a catastrophic loss is rapidly changing. The opportunity to gather information can be rapidly lost. Because it is likely that the firm's project staff is involved with the technical issues that are presented by the loss, the Coordinator should have primary responsibility to arrange for information to be gathered. As soon as possible after the immediate danger has been abated, the coordinator should write to the owner or the party in control of the scene and request that the scene be secured.While this may not prevent the removal of evidence, it will demonstrate a reasonable effort by the design professional to preserve evidence so that if evidence is destroyed the design professional wifi be able to argue that he has been prejudiced by its destruction.

The Coordinator should dispatch an employee to photograph the scene as quickly as possible after the loss occurs. Thereafter, all employees who were present at the scene or who have firsthand information regarding the loss should be interviewed by counsel for the firm. Where that process will be delayed, the employees should be asked to immediately set forth their recollections regarding the incident in a memo addressed to counsel and identified "Attorney/Client Communications - Privileged." These materials should be segregated from the project file and maintained in a Claim File with limited access.

While the retention of an expert consultant is frequently delayed until long after litigation has started, it is our view that in technically complex matters, particularly in the case of a major loss, the immediate retention of a forensic consultant is critical. A technically proficient consultant who specializes in the forensic aspects of his discipline can help guide the early stages of an investigation while transient information is still available. A forensic consultant not only brings a higher level of objectivity to the investigation and analysis, but if properly selected the forensic expert wifi bring necessary experience in the investigation of the type of loss involved.

The Coordinator should continue the collection of information by retrieving relevant files from storage, collecting them from the various locations in the office where they may be kept, obtaining them from employees and assembling them in a single secure location.

Included in the process of gathering information is a review of the project file to determine whether any special obligations existed to the client with regard to the project. In particular, it is critical to determine early in the process what the design professional's responsibilities are to the client in connection with:

assisting in investigations and claims analysis
producing documents related to the project for the client's use
any obligation with regard to indemnifying the client.

Each of these factors can have a direct impact on how the design professional proceeds with its investigation and its conduct following the loss. Clearly, where the client's interests are inextricably tied to those of the design professional, the nature and scope of the investigation will change. In indemnification situations, the design professional may have an obligation to protect the owner's interests and clearly the design professional's early investigative efforts must be directed to that end.

Even in the absence of an indemnification obligation, the design professional's obligations toward the client in the event of a loss must be known and understood early. Where the design professional is obligated to produce documents or to provide investigative assistance, a refusal or delay in complying with those obligations can lead not only to an adversarial relationship but to a separate basis for a claim.

Training

Clearly, many of the efforts described in this paper cannot wait for the occurrence of a major loss to be implemented. The appointment of a coordinator and perhaps an assistant to act in his absence must be made before a loss occurs. More importantly, the employees must be trained to act in accordance with the firm's disaster plan. Regular training sessions should be held to discuss with employees their role in the plan described above. Planning for major losses should become an important part of each design firm's loss prevention program. All senior members of the firm should be familiar with the identity of the firm's professional liability carrier, that carrier's contact person for the firm and the identity of the attorney usually retained by the firm for professional liability matters.

While self-preservation is most likely the last item on the minds of design firms facing a catastrophic loss, it is clearly one of the most important. Although assisting in the abatement of any immediate danger, mitigating losses and providing service to the client are paramount, the failure to properly plan for the protection of the firm's interests in the period immediately following a loss can dramatically increase the financial and administrative burdens of the litigation that will almost certainly follow any major loss.

This bulletin is intended for general information purposes only and does not constitute legal advice. The reader should consult with legal counsel to determine how laws, suggestions and illustrations apply to specific situations.