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$4.7 Million Overage Sparks Lawsuit Against Architect Over ‘Defective’ Plans

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The Indianapolis Public Transportation Corporation recently filed a lawsuit against Dallas-based architectural firm AECOM over construction plans that it claims were “inadequate, inaccurate and defective.” According to Fox59 News, the lawsuit alleges the architect responsible for the Julia M. Carson Transit Center in downtown Indianapolis did not properly account for the project’s archaeological work, only setting aside five days for archaeological monitoring because the firm believed the likelihood of archaeological discoveries was too low to require more assessment.  

However, maps dating back to 1887 showed that the site previously housed various structures, indicating the potential for the discovery of historical artifacts, according to the lawsuit. During excavation, archaeological materials were found on site and the soil was determined to be unsuitable for the project. These issues ultimately caused delays that increased the cost of the project by over $4.7 million, the news outlet reported.
     

“It is hard to feel bad for the design professional in this case, especially if they had been given all of these maps and information,” said Connor Cahill, Broker, Professional Liability, Burns & Wilcox, Minneapolis, Minnesota. “Only leaving five days and less than $7,000 for the monitoring was obviously not the correct choice to make, and it resulted in millions of dollars in delays. That definitely shows where having proper insurance coverage is so beneficial.” 

This type of lawsuit could trigger coverage under a design firm’s Architects & Engineers Professional Liability Insurance, said Marcos Abel Baeza, Senior Broker, Professional Liability, Burns & Wilcox, Dallas/Ft. Worth, Texas. 

“It appears that they were just surprisingly lax in surveying the foundation where this entire structure was going to be placed,” Baeza said. “This could be a catastrophic error on the firm’s part, and it could be difficult to successfully deny that they were at fault. Architects & Engineers Professional Liability policies are designed for incidents like this case.” 

Blame likely to be pointed ‘every which way’ 

According to Fox59 News, the lawsuit, which was filed in October, alleges that AECOM is liable for the project going over budget because the firm “failed to properly evaluate and interpret all of the information laid out in front of them.” In this type of case, “the blame is often going to be pointed every which way,” Cahill said, and other contractors involved in the project could also be pulled into litigation. This could prompt coverage under a construction company’s Contractor’s Errors & Omissions (E&O) Insurance, he said. 

“The design professional will have their Architects & Engineers Professional Liability Insurance policy, but then the construction contractors should also have their own policy,” he explained. Both policies can help pay for legal defense, regulatory penalties, settlements, and other expenses. “Usually when a lawsuit comes in, everyone involved is going to be named.” 

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Usually when a lawsuit comes in, everyone involved is going to be named.

Larger design firms and construction companies usually carry “pretty substantial limits” on their policies, Cahill said. Many firms will also carry an Excess Liability Insurance policy, Baeza said. 

“Many Architects & Engineers Professional Liability Insurance policies have $2 million limits,” Baeza said, pointing to the importance of Excess Liability Insurance. With situations like the recent lawsuit in Indianapolis, “already that likely would be a full-limit loss,” he said. “With something like that, both policies would probably kick in.” 

Rectification and protective indemnity among key coverages 

Last year, a hospital in Nantucket filed an $8 million lawsuit against the architects of its new facility, alleging breach of contract, negligence and malpractice over issues ranging from fire safety violations in the design to plans that were “contrary to common sense,” the Nantucket Current reported in July of 2023. In Massachusetts earlier this year, a Boston-based architectural firm was sued over “a series of failures” that impacted a large mixed-use development, the Boston Business Journal reported in April.   

When a contractor discovers a design error during a project, rectification coverage under their Contractors Professional Liability Insurance can play a vital role, Cahill said. This can help pay for the cost of correcting the error before it becomes a claim. 

“The point of the rectification coverage is to kind of get out in front of any future claims that may result from a design professional’s errors,” Cahill said. “The carrier will essentially reimburse the funds to allow the issue to be fixed before it becomes a lawsuit down the road.”  

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Architects & Engineers Professional Liability Insurance policies are generally very affordable for design professionals. It is important to get yourself covered if this is what you are going to be doing for a living.

Protective indemnity is another essential component of Contractors Professional Liability Insurance. This provides coverage for losses caused by a subcontractor or consultant’s error beyond what is provided by the subcontractor’s insurance policy. “It can reimburse the insured for any financial loss sustained from the subcontractor’s design errors,” he said. 

When purchasing this type of insurance, design firms should work with a broker who specializes in the industry and be prepared to discuss the types of projects they work on, along with annual revenue. “The best way to do it is to look at the type of project you will be working on and how much revenue you are bringing in annually,” Baeza said. “Architects & Engineers Professional Liability Insurance policies are generally very affordable for design professionals. It is important to get yourself covered if this is what you are going to be doing for a living.” 

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When a design firm is working on a large project, there can be huge ramifications if something is delayed or goes wrong.

They may also want to work with an insurance carrier that offers contract review services — particularly if they are engaged in large-scale projects, Cahill said. 

“A law firm will read over the contract, point out any ambiguities, and reword it to limit their liability,” he said. “When a design firm is working on a large project, there can be huge ramifications if something is delayed or goes wrong. That involves more risk than other types of projects.” 

Claim severity on the rise 

Lawsuits against architects over delays seem to be occurring more often, ROI New Jersey reported in September of 2023. While it is unclear how many architects and engineers are sued each year, the risk of facing a lawsuit at some point in their career is a serious consideration for any design professional, Baeza said. 

“It is usually just a matter of time before an architect or engineer will face a lawsuit, honestly,” he said. “A very minor issue can balloon into a huge issue. Nobody can operate at 100% with no errors at all times. That is just the human element of it — no matter how much you get AI or computers involved, there has to be someone on the other end entering numbers and sometimes we make mistakes.” 

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Nobody can operate at 100% with no errors at all times. That is just the human element of it.

According to Cahill, the cost of claims is also on the rise. “There continues to be an increase in claim severity concerns, which result from a variety of factors including inflation and the increased lifespan of a claim,” he said. “The longer a claim is open, the more defense costs are incurred, resulting in a more expensive overall loss.” 

By working with a knowledgeable insurance broker, design firms can ensure they are properly covered with adequate limits for their level of risk. “I would just recommend that they work with their insurance retailer and broker to figure out what makes the most sense for them,” Cahill said. “The frequency of claims is slightly ticking up, but carriers still want to write insurance and they are adjusting their rates and appetite accordingly.” 

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