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The Smart Board & Property Manager Legal Guide: The Devil Is Indeed In The Details...

Alan Tannenbaum, Esq.:

All right. My name is Alan Tannenbaum, I'm managing partner of Tannenbaum, Lemole & Kleinberg. We are construction lawyers and work primarily in the association committee association field. We take groups through turnover. HOAs and condos help them garner engineering and accounting studies. And for the groups that want to pursue claims we certainly are involved in that. But the second part of our practice is in repair consulting. So for an older condominium or even a Homeowners Association that has a significant repair project that they're undertaking, we negotiate the contracts with the engineers and consultants. We negotiate the contracts with the repair contractors. We help with best practices in undertaking those projects, and where it's necessary we're involved in enforcing repair contracts and warranties flowing from there.

I personally have been doing this work for over four decades. And our current market is from the Space Coast across Central Florida. Pasco and Hernando on the west coast down to Naples. More recently, we have taken on some clients in Palm Beach County, but that's our market. But I've been dealing personally with engineers for time I started my career when I was 24, and I've seen the entire evolution of the practice of engineering as it relates to condominium and Homeowners Associations. Historically, the owners had the upper hand when it came to engineering and construction contracting. Generally, there was a deification clause that might be in favor of the association or the owner that was given by the contractor. There was no restrictions on liability of damages relative to anything that the engineer or the contractor did but that market has changed.

Prior to the Surfside issue, which has put the engineering firms that were involved on this project, their liability carriers are going to pay a lot of money to resolve those claims. The liability insurers in Florida are already a bit nervous about dealing with engineering firms because a lot of engineers had been sued on not only original construction projects but also repair project. If you think about, it's a lot easier for an engineer or a consultant to design a brand new structure. They know every facet of the design, they figure out how it's being put together appropriately, they choose all the products and materials, and if they do a thorough job and they have the capability of doing it, probably they have fairly small exposure from liability and claims.

A repair job is a totally different thing. When an engineers coming into a property they do not have x-ray vision. They may not know at all how this particular building was built. In Florida, the idea of having as-built plans, I call it the unicorn of the construction industry in the sense that very few instances are there as-built plans, especially for a structure that may have been built in the '70s and '80s. So they may have a set of plans but who knows if it was built according to those plans. And then the engineer's got to figure out based upon some visual examination, maybe some destructive testing, how to design a repair for what this older structure and with all the details, and materials, and products, and so forth. They are messy jobs, they are difficult jobs, they are jobs that sometimes exceed the expertise of the contractors who are taking on the contracts, and it opens up a great field of liability for engineers in undertaking those jobs.

There are also some significant damage exposure if in fact, the engineer doesn't do an appropriate job. In Champlain Towers, the engineers were really investigating it. Some of them recommended some repair protocols, but really the major repair job hadn't been attempted yet. And yet when the buildings went down the engineers ... Any engineer who would touch that property has been sued and those liability insurance carriers are going to pay the freight. They're difficult jobs, there's a great potential for liability, the damages could be very significant.

The other thing with dealing, especially with condos, is they're not necessarily the easiest client to deal with. If an engineer's working for a sophisticated developer, they usually have an understanding of the construction process, construction costs, the construction processes, but you could have an engineer who's being hired by a condo association where it's, obviously, a volunteer board, they may have no expertise in construction. And it's just a more difficult owner to perform work for so they're dealing with that. And right now engineers are extremely busy. We've had engineers quote jobs that indicate they can't even come out to the property for six months. Any engineer these days, and we deal with a lot of them, who is promising a report by a date certain, we have very little current confidence that promise data is going to be met based upon the current circumstances. So the busy they are the more potential there are for mistakes.

And there's been a situation where there's a number of engineering firms who have totally gotten out of the condo repair market and this has caused a workload to increase for the engineers who have taken it on. Now, the result has been that with what the insurers have paid on the Champlain Towers and other projects, that they have raised the premiums of engineers to an extraordinary level. I was talking with an engineer. For a million dollar liability policy, the premium is $200,000 and the deductible per claim is $100,000 dollars.

So it's extraordinarily expensive for the engineer these days. The carriers have really increased their ... The cost of getting their coverage. Again, chasing some engineers out of that field. So you might have an engineer say, "Look, I'll be happy to do an inspection for you. I'll do an inspection report. I will recommend certain things but I'm not going to be the one to seal any repair drawings at this juncture. Or I'll stay within the field of testifying in cases but I'm not going to do repair design anymore." So when we go out into the marketplace for associations and try to locate the firms that are willing to do this work, willing to pay the insurance premiums to do the work, we have a field of engineers that is decreasing as time goes on.

So what's been the result? The result is that the insurance companies have communicated to the engineering firms that there are ways that you can prepare your contracts and agreements to limit your liability otherwise protect us as your insurer. And we're now seeing engineering contracts coming in with standard conditions that are very detrimental to owners and associations. And we're going to highlight those today. And I'm going to turn the program over to my partner Jon Lemole and our associate Brian Tannenbaum to talk about some of the most deleterious aspects of engineering contracts that we have seen in the last couple of years pop up that have to be seriously considered by associates. So, Jon, take it away.

Jon Lemole, Esq.:
All right. Thank you. Good morning, everybody. So the name of this presentation or at least the part of the name of this presentation is the devil is indeed in the details. When we say the devil is in the details what we mean is one of the most overlooked parts of an engineer's contract is the general provisions sometimes called the general conditions but typically general provisions. If you've ever seen an engineer, a typical engineer's contract, you'll know what I mean when I say that many client, many of our clients, many, many community association managers, boards, the folks that are looking at these contracts view this section as boilerplate, they may view it as non-negotiable legalese. And yet these maybe some of the most important provisions to look at and to try to adjust to an association's benefit. And why do I say that?

Well, let's start from the fundamental proposition that at its base a contract, any contract, is a risk allocation agreement. If and when things go wrong who is responsible? And many clients, however, view the contract solely for the purpose of determining the work to be done, the price to be paid, and so we're all focused on well, what is the engineer going to do? What is it going to cost us? And yet because of the intense pressures on the building engineering industry right now, engineers and their insurance carriers, and Alan touched on this, and you can bet that they're getting the assistance of some very savvy lawyers on their side, but they're paying extremely close attention to these risk allocation provisions with the goal of being to transfer as much of their risk on the project to someone else, and typically that's going to be the client. How can they transfer as much risk to you when things go wrong? So don't let that happen. And these are sophisticated provisions sometimes that require close legal analysis but they're important.

So what we're going to take a few minutes to look at here is some of the typical ways that engineers have recently been attempting to use creative language in their general provisions to transfer more risk to their client. We're going to show you some provisions that we've seen in some contracts, talk about them so with the hope that when you get an engineering contract, when you see this type of language, that's probably a good trigger for you in your mind to say, "I need to get somebody to take a look at this because this is pretty important and critical stuff."

So we're going to start with limitations of liability clauses. Whoever's running the PowerPoint, Brian or Michelle, I can't remember, could you go to slide eight, please? All right. So a limitation of liability is probably the easiest thing to see. When you see it you'll know it. So let's take a look at the second part of this slide, the second full paragraph under limitations of liability. And it says "In recognition of the relative risks, rewards, and benefits of the project to both the client and consultant, the risks have been allocated such that the client agrees that to the fullest extent permitted by law, the consultant's total liability to the client for any and all injuries, claims, losses, expenses, damages, or claim expenses arising out of this agreement from any cause or causes shall not exceed the amount of $10,000 or the amount of the consultant's fees whichever is greater." I'm going to stop there.

So a typical engineer is covered by insurance, and that insurance policy may have coverage of a million or $2 million. And yet in this provision, you have a very broad limitation of liability which essentially says that if you've got a claim against that engineer, the total amount that you can recover is $10,000 or whatever you pay the engineer. If you pay the engineer $40,000, the limitation of the engineer's liability is $40,000.

Now, I can tell you from experience that when things go wrong, especially on a big project, the liability is very rarely 10 or 20 or 30 or $40,000. We're talking typically, hundreds of thousands of dollars, maybe millions of dollars. If you've got a claim, if you've got damage that is caused because of an engineer's faulty design work, and you sign a contract with this limitation of liability, there's a pretty good chance that you're going to be out of luck on anything over and above what that limitation of liability amount is. This is a pretty easy thing to spot. So if you see anything like this in a contract, this is where your antennas should go up and you need to be looking at it and saying, "No, no, we can't limited in this fashion."

Alan Tannenbaum, Esq.:
Some of the engineers, on the cover page, when you get their proposal, they let you know that there is a limitation of liability. So they highlight it. The particular provision that you're seeing here is some pages that are usually attached to the contract or in maybe the last few pages of it. And when they hand you the agreement they're not saying, "Oh, by the way, even though I'm giving you the certificate of insurance that's for a million dollars, if you ever bring a claim against me all my insurance company's going to do is write you a letter and say, "Here's $32,000 because that's the limit of liability. We're done." So I at least respect some of the engineers who right up front tell a manager or an association, "Look, this is my maximum exposure," but there's also engineers who hide it in the back pages and don't let you know that that's what they're handing you. Go ahead, Jon, I'm sorry.

Jon Lemole, Esq.:
And that's the natural reaction when you get that contract and you see the provision that says that the engineer's got an insurance policy of a million or $2 million liability coverage and they're going to make the association the additional insured on that policy. And that sounds all great. A lot of people get lured into thinking that well, this is perfect, there's plenty of coverage here if something goes wrong and the engineer does ... Makes a mistake. But buried, we've seen a time and time again. The fine print, as they used to say, are clauses such as these which totally undo what you think you may have so it's very important that you pay close attention to those things.

I want to touch on one other thing in regards to limitations of liability. When things go wrong and there's an engineering claim, a claim for a design problem, a design defect, it is very typical to make a claim, if you wind up in litigation, against both the insurance firm ... I'm sorry, the engineering firm. But don't forget that plans are designed, signed, and sealed typically by an individual engineer, a professional engineer. And normally they have responsibility. They have duties, professional duties, and professional standards of care.

So one thing that you may see, and this is allowed under a statute in Florida, Florida statute 558.0035 if you want to look it up, there are ways that engineering company can potentially limit the individual engineers own exposure personally for their professional malpractice. There's some very strict things that have to happen in that agreement. There has to be boldface, all capitals, five points bigger than the rest of the language in the contract saying that the individual engineer is not liable. So pay close attention to that because here's what happens.

Here's why that's important. You may sue an engineering firm. On a very large claim, you may reach the limits of their liability. You may get an excess judgment over and above what the insurance coverage is and you may never be able to collect against that engineering firm because typically what ... Engineering firms may not have capital, they may not have property, they may not have buildings that they own, they may not have large bank accounts that you can go after. And so that's why it's important to try and also keep in the mix, so to speak, the individual engineer because they're the ones that are making the decisions, designing the plan, signing and sealing the plans so that's another area that you should pay close attention to. All right. So limitations of liability being the first thing.

The second area where we typically see engineering firms and their insurance carriers try to adjust risk are in very craftily worded indemnification clauses. So what is an indemnification? An indemnification is where one party contractually obligates itself to cover damages, costs, claims, defense costs, attorneys' fees, it can be any number of things or all of them, assessed to another party. It may include the duty to defend the indemnified party if a claim is brought against the indemnified party. So damages, and attorneys fees, and costs, and litigation costs they're all at stake here. Brian, go to slide five, please, and then we'll come back to this one.

So you may get an engineering contract with a very, very long paragraph under the heading of indemnification. And folks, I'll tell you sometimes I read them and I glaze over them so I can understand if you're reading them. They are long, they're confusing, they're full of a lot of legal terms. Okay. But here's some things that are easy to spot and you should be on the lookout for it. So taking that first paragraph which is an indemnification provision in an actual engineering contract that we've reviewed. "The engineer shall indemnify and hold harmless the client," meaning the association in most cases. And I'm going to skip here in the interest of time. "Against any and all claims, damages, losses, and expenses to the extent, they are caused by the negligent acts, errors, omissions of the engineer and its employees and the performance of its services under this agreement."

Okay. We're good so far, right? The engineer's saying, "Look, if we screw up and you get sued, our design causes somebody to be injured on the project or a pedestrian to be injured because we didn't design safety measures correctly, we're going to indemnify the association." Okay, we like that. Here's where it gets a little tricky in the next section. "The client shall indemnify and hold harmless the engineer from and against any and all claims, damage, losses, and expenses arising out of or resulting from the performance of the services provided that any such claims damage loss, or expense is caused in whole or in part by the negligent act or omission and or strict liability of the client," meaning the association. "Anyone directly or indirectly employed by the client," contractor.

So here's what that means. Even though the engineer may be partly liable, if the association is partly liable, if the contractor is partly liable, that triggers the association's duty to provide complete full indemnification including perhaps attorney's fees and defense costs to that engineer. We don't like that. That is not a very good provision for the association to agree to. And so you should be on the lookout for something like that where the indemnification is not reciprocal. Where one party's being asked to do more and typically, the association is being asked to do more than the other side is being asked.

Alan Tannenbaum, Esq.:
Jon, you may have glossed over something there though. Because if you look at the first section that you quoted, you see where it says they're subject to the risk allocation provisions? So even though the engineer here, for their own negligence, is indemnifying the association, the limit in this contract is going to be ... Let's say there was a $10,000 limit of liability, that indemnification is also limited by the same limit. They stuck that subject to the risk allocation provisions in here. Even on the engineer's indemnification, it's limited.

Jon Lemole, Esq.:
And the fact of the matter is that under Florida law there is ... Not to get too technical here. A lot of times these types of provisions aren't necessarily necessary because we have something in Florida, negligence law that's called comparative negligence. And basically, that allows the fault to be a portioned among and between all of the parties at fault. And sometimes what you see in these indemnification provisions is an effort to contractually change that. And a lot of times these indemnification provisions create a situation where we go back to something that used to be in Florida law which is no longer in Florida law and has been pretty much overruled and statutorily gotten rid of in most states, something called contributory negligence.

Contributory negligence used to be a defense that if the party suing was at fault in any way, in any proportion by any percentage, that was a complete defense to the party, person being sued. So you'll see that a lot of these indemnification clauses are trying to change what's already the law in Florida in regards to comparative negligence and create something that looks a lot like the old contributory negligence defense which has been overruled and changed as violating public policy at least in this state and plenty others.

Let's look at the second clause on this slide. "For third-party claims to the full extent permitted by law, the client," again, that's the association, "hereby agrees to indemnify hold harmless and defend." So puts the association in the position of being an insurer with a duty to defend the engineer from and against all third-party claims including bodily injury, property damage, products liability, demands, damage, losses, causes of actions, so on and so forth caused or alleged to have been caused by anything other than the negligent performance of the engineer of services under this agreement related to the project.

So you may find yourself in a situation under this clause where if somebody gets injured, that person sues the engineer, the owner, the association, the contractor basically. You know how it goes. You've heard this before. They sue everybody. And if the engineer raises the defense that it wasn't a pro ... We didn't cause this we're not at fault here. Even if that may be contested, arguably this provision creates the possibility that the association may have to provide defense costs for that engineer. That can be very expensive. I don't need to remind you that lawyers are ... Can be very expensive, especially in litigation.

So these are very, very dangerous provisions. And when you see in the fine print of an engineer's contract anything having to do with indemnification, you should be consulting a lawyer because they're difficult to understand and there are a lot of legal implications to these clauses that you should be getting some legal assistance on. Brian, can you go to ... What slide is this? This is five or eight? Which one is this, Brian?

Here's another indemnification provision. "Client shall indemnify defendant hold harmless the consultant from and against any and all claims, damages, losses." In the interest of time again, I'm skipping a little bit. "Provided that any such claim damage, loss, or expenses caused in whole or in part by the negligent act or a mission of the client or anyone directly or directly employed by the client." So again, this is another situation where the engineer is attempting to provide some insurance against having to fund and potentially pay damages relating to claims brought against it where there may be somebody else partially at fault for this claim.

So again, a worker sues the engineer, a passerby sues the engineer, the contractor, the association. You can bet that the engineer's going to raise this claim and say, "Well, to the extent that any of this loss is the fault of any of these other parties, then our defense costs are covered, our damages are ... Any damages assessed against us may be covered." And again, not only are these difficult provisions, a lot of times they're ambiguous when we actually go to apply them in litigation and a court. A judge has to make a decision as to what this means. So again, you see these, these are important provisions to be on the lookout for and get some advice before you agree to them. 

Alan Tannenbaum, Esq.:
Jon, let me add too on insurance side. So these indemnification provisions like this have been in standard owner general contractor contracts for decades. And the insurance companies who insure contractors know that the contractors are indemnifying the policies. Their insurance policies have been written to cover this indemnification exposure for a contractor. These are new clauses that engineers are starting to embed in their contracts and your liability policies have not adjusted yet to meet this indemnification exposure.

So I would definitely recommend every association that's getting into a contract with an engineer, take the engineering contract before you sign it, go to your insurance agent and say, "Look, here's the indemnification provision in this contract, if the engineer takes advantage of this is this covered under our association's liability policy? Will the insured utilize his insurance money to pay this indemnification exposure?" If they say no, the next question is to your agent, "Can we buy that coverage? Can we buy a writer that will protect us from this indemnification exposure?" The real bind is when the carrier comes back and says, "We won't do it. We will not cover this exposure," and then you're putting association assessment money at risk to back up this indemnification exposure. It is a real problem. Go ahead, Jon, I'm sorry.

Jon Lemole, Esq.:
All right. So we're going to move along here a little quicker because we want to give some time for questions and answer. Another thing to be on the lookout for is something called a waiver of consequential damages. What are consequential damages under an engineering contract? Consequential damages under an engineering contract are ... And it may say in the provision things like loss of profit, loss of business revenue, rental expenses, storage costs, things like that. But also consequential damages in the area of insurance coverage is a very, very specific term. And I will tell you that most professional or commercial general liability policies don't necessarily provide insurance for the defective work done by the contractor, defective design done by the engineer. In other words, it doesn't cover having to redo the work. What those policies typically cover is if that defective work causes bodily injury, property, and other damage to other property at the association.

So take a very simple example. You've got a new roof being put on, and for a variety of reasons the roof design and installation is defective. Well, insurance isn't going to cover those folks to redo the roof but if that defective design and installation causes water leakage, causes moisture intrusion, causes damage to the substructure, causes damage to the frame, it causes damage to interior units, all of that is consequential damages and that's how insurance companies define it.

And so while you may be looking at a waiver of consequential damages provision and it says, as in the AIA contract, it says "To include but not be limited to," and it has all these things about lost revenue, lost profits, storage costs, rentals, things, and you say, "Okay. We can agree to that." That provision can also be construed as providing a defense to an insurance carrier who's ensuring that engineer or that contractor, for that matter, as a basis for saying that we can't ... We don't have to cover consequential damages either because you waived it. So when you see a waiver of consequential damages, even if it has a list of things that don't look that onerous, you need to pay really close attention to that because of the way that the law defines consequential damages and the way that insurance carriers and policies typically define consequential damages. The last thing I'm going to talk about-

Alan Tannenbaum, Esq.:
Jon. Let's move through assumption of risk really quickly, Jon.

Jon Lemole, Esq.:
Assumption of risk. Assumption of risk is similar to limits of liability. If you look at slide six you'll see that it's a very similar type of limit of liability clause. And to look at it real quickly but the client assumes the risk. Now, this is not necessarily limited. It's worded a little bit differently but basically, here the client assumes the risk. The association assumes the risk of any damages in excess of $10,000 or the amount of the fee that was paid to the engineer. It's a limit of liability but said a different way. So it may not say limit of liability it may say assumption of risk or it may say here risk allocation, which sounds pretty benign but you need ... Anytime you see that risk allocation you need to pay attention to it. Okay. So those are four key areas or things that you'll see in these contracts. Now I'm going to flip it over to Brian. Brian's going to talk about a couple of other areas where you should have bells ringing when you see them in these contracts and get some legal analysis on them.

Brian Tannenbaum, Esq.:
Right. So good morning. Some common clauses in these contracts that are a little bit more simple.

I'll talk loudly anyways. So the first thing is reduced statutes of limitations. So under Florida statute 95.11, there's a four-year statute of limitations for negligence claims or claims based on a contract. A lot of these engineers will stick into their contracts a reduction of that statute of limitations that's not based upon any sort of reasoning or method, it's really just a way to shorten the time for an association to discover any type of defect. The statute of limitation starts running as soon as that damage or negligent act was discovered.

But under this clause that they've been sticking in these contracts if you don't discover that within two years ... Or if you don't bring a claim within two years, your claim is barred. So what the problem is, is you now have basically two years to go speak to an attorney to discuss these claims and if an attorney doesn't see that two-year statute of limitations has been altered in the contract they may be expecting a four-year statute of limitations for these claims and you may miss the statute of limitations deadline and your claim may barred. So it's very important to pay attention to any limitations periods that they put into these contracts.

Another issue that comes up a lot is arbitration and no prevailing party attorneys fees. So most of these contracts that are not in arbitration contain prevailing party attorneys fees but some of them don't. But what a lot of them include are very, very narrow arbitration clauses that require sometimes just an arbitration paid for by the association. Sometimes the arbitration is split between the parties. Usually, they have to follow the American Arbitration Association rules. What that removes is the association's right to take it to court and have a trial by jury.

They have limited discovery involved in arbitration. You don't get to use the rules of civil procedure. You also may have an arbitrator, and you most likely will have an arbitrator who is in the construction industry, is in the engineering industry, and is not necessarily a person who lives in your area who is a homeowner, who is a condo owner, who lives in an HOA, who has any sort of sympathy for an association. So we always prefer that these claims are resolved in circuit court because you have that opportunity to present it to a jury of your peers. Another thing with arbitration is that they are, for the most part, not appealable. So the arbitrator's decision is the decision and that's what you get. So there's no way to appeal up to a higher court if the arbitrator makes an improper decision based on an improper interpretation of the law or an improper interpretation of the contract.

The last thing I'm going to talk about is the venue clauses. So most of these contracts that allow for circuit court claims have a venue in the contract. And you'd expect that if, for instance, a contract or a job was performed in Lee County, that the venue for the lawsuit would be in Lee County. But a lot of these contracts insert either on purpose or inadvertently have venue clauses that are in different counties in Florida. So you may have an engineer that's based in Lee County, a condo association in Lee County, the work was done in Lee County, all contractors were in Lee County, but the contract calls for venue in Charlotte County or Pinellas County or Marion County or any other county. So it's important to make sure that you have a venue that makes sense under the terms of the contract.

It's also important because you may have a contract with an engineer and a contract with a contractor that call for different venues. And what this doesn't allow is for you to bring those claims together and you'll be required, as the same in arbitration, you'll be required to bring your claim separately against the contractor and the engineer and it will increase those litigation costs. I think that's all I have for now.

Alan Tannenbaum, Esq.:
Okay. Again, these are clauses that could come back to bite you. There's so many now embedded that it really it's good to have them reviewed. One of the challenges with the engineering contracts is also in the phasing of the work. You might hire an engineer to do an investigation, but within that contract, they talk about stage two of their work may be to draw a set of contract documents, and stage three may be contract administration. So you signed a contract two years ago and now you've asked the engineer to do this project manual but you don't remember that this contract that was signed a year or two ago, that was really for the purpose of investigation, those provisions are now buying the association as you go into the next phase which is the project manual.

So the liability of an engineer for inspection is usually not that great. So you might sign one contract that but before the project manual is created go back managers and look at that contract. Pull it out and say, "Okay, what did it have in it that the association may have signed?" That's the time to negotiate a new contract before the engineer gets the work to actually do the project manual.

So here's a sequence. I think if we haven't frightened you enough during the progress of this session about what engineers are doing in their contracts, call me I'll frighten you more. But the key is, tomorrow if an engineering agreement is put in front of you, or a consulting agreement, look carefully at the terms. You can contact a lawyer like our firm to tell you what is deleterious in there. Most of the engineers will negotiate. They will change their limitation of liability from $10,000 maybe to the policy limits. Sometimes they will remove the indemnification clauses. They will clear up the venue problems. All the things that we have occurred on a daily basis we're negotiating with engineers to correct these issues.

What's difficult is after they've already done their project manual and you're about to go into ... Because a lot of times that's when we get a request from the association to look at the general contract, the proposed general contract. A bidder's been accepted for the work, would you please look at the general contract? And we say almost invariably "Yes, but let us also see the contract that you have with your engineer," and that's when we usually find these things. A little bit late because engineers are very reticent to say, "Okay, we'll agree to alter our contract but not to apply the work that we've already done. We'll agree for the contract administration portion of the contract to alter it," which is a little bit late in the process.

It's again, the major liability's going to be during the design phase. What's in that project manual? Where it fell short? Where it fell short in the design? And that's the part, the most important part, to have an appropriate contract for and it may already be too late. The message out to managers is, when any engineering agreement comes in front of you, that's the time to review it. If you happen to have an existing contract where all the engineer has done so far is the investigatory work they haven't the project manual yet, before they do the project manual look at the contract and that's the time to negotiate a different contract for the remainder of the work which is certainly possible at that point.

But call us up we're open. Anytime you get a contract and you just want to send it to us as a manager and say, "Give me the talking points to my board as to why we shouldn't sign this agreement like it is, or they shouldn't," we're happy to do that. And I'll do that gratis for every manager out there. Anyway, solutions. Jon, tell us what the solution to these issues are besides having a good construction lawyer and reviewing the contract, what could be done on a broader basis industry-wise to mitigate against his problem?

Jon Lemole, Esq.:
Right. Well, as Alan said, and just reiterate it really quickly. Some of these are negotiable and we've had some success negotiating them. But when you can't renegotiate them there's some other things that perhaps you can look at, and more importantly, maybe there are some things that if enough people put pressure on engineers and even legislators, maybe there'll be some creative ways of dealing with some of these issues. Engineers price their work based upon their risks. And so if they have these broad indemnification clauses and limits of liability, that may be a part of what goes into their calculation of how they're pricing the work that they're planning on doing for your project.

And so if you can't change the risk allocation one possibility is to change the pricing. And I know nobody likes to think about paying more but it may be worth it to pay a little bit more to the engineer in order to induce them and their carriers to alter that risk allocation. And it's a downstream thing. You pay the engineer more, the engineer may get some additional coverage for that project or expanded coverage for that project so they'll have to pay a little bit of an extra premium for it but that's one option.

The other is related to the premium part of this. Per project premiums paid by associations for enhanced coverage. So creatively you may go "Bring the engineer's carrier into the conversation." And is there a way that we can perhaps cover that difference in premium as a way of inducing the carrier, the engineer, to be more comfortable with a different risk allocation on the project?

And then there's a third option which we've not found yet, but if enough people pursue it maybe it will be created. And that is through the creation of some novel insurance coverages. And one of the things that we've been talking to a lot of insurance agents, brokers is whether or not there's coverage that an association can buy that would cover the association's risk under these allocation provisions that put more risk on the association.

So it's almost like gap insurance. Some of you may be familiar with gap insurance with autos. You have a period of time where you've got to provide some additional insurance from when you buy the car and you actually take delivery of the car or whatever. But we've gone to some insurance producers to see whether there's a product like that and so far we haven't found it. But the insurance industry is always looking for ways to make money and if they can come up with a way of coming up ... Of creating a policy, you may soon see that there are coverages that the insured ... Sorry. The association can buy. If you can't get the engineer to readjust those indemnification provisions, those limits of liability provisions, those assumption of risk provisions well, at the last resort maybe there's some insurance that the association can buy to cover that additional liability or risk that the association faces.

Alan Tannenbaum, Esq.:
Jon, we have reached out to the insurance industry and they're not knocking down our doors saying those policies currently exist. It's a matter of advocacy by the Community Association industry to fill that gap. Years ago, there was a $12 million repair project we were involved in, the engineer had $1 million of coverage. And we went to the engineer's insurance company and said, "Look, we don't think $1 million is sufficient, can we buy up the coverage?" So what we did is we negotiated a 14,000 premium just on the project to raise the engineer's limits of liability to $5 million and the association paid the premium. And on a $12 million job at least had $5 million of a professional liability coverage for the engineer. Now again, in today's market, that's much more difficult because they're all running for the hills on all insurance coverage in Florida, but we're going to certainly keep pressing for them. Jon, I don't know you were concluded but we should leave a couple minutes for some questions that I see have come up.

So I have a question from Neil. Should associations have attorney review liability carrier's policy limitations on this? Absolutely, but I will throw it back on the agents. If you have a very good insurance agent, that's really their first line obligation to go back and question their own insurer about what the coverages are. They asked the question about the indemnification of whether that's covered. That's part of what an agent gets paid. The service that they're to provide is be the conduit between the insurer and the carrier, make sure that these risks are covered. Once they come up with a solution we certainly are there to review it but your agent really has the frontline responsibility. And get them to indicate in writing that yes, this policy now does cover this risk and pin that down. Let me see.

There's a question. All right. Asking if there's an AIA form agreement. The owner architect agreement let's say under the AIA is not a bad form. It historically did not have these limitations of liability clauses in it. These are recently added industry requirements. Frankly, I don't think an owner engineer agreement needs to say much. Here's the service we're providing, here's the charges that we're making. The standard of care is already set by state statute of what an engineer's standard of care is in Florida. And when I see a one-page contract, as I sometimes see from an engineer, here's my rates, here's the cost, here's what I'll do, and here's my insurance, and you get your date insured under their policy. It doesn't need a lot of language because their professional liability is already set by state statute and regulation so it doesn't have to be a dramatically long contract but they have made them so.

If any of the folks who've been around a long time remember, we didn't have any lengthy owner engineer contracts. They were pretty basic one or two-page documents maybe with a price sheet attached. Only the engineers have made them complicated. Let's see if there's anything else. There's no new legislation on inspections. I just asked that. Unfortunately, the legislature was involved in other things this session. Didn't tackle insurance, didn't tackle the inspection situation state-wide on older buildings, and certainly, of course, didn't cover any of the insurance issues that we have. Nothing on reserves. Nothing passed. All the lawyers who are going to do the legal update this next year saying, "What are we going to talk about for two hours because legislature didn't do anything?" So that's not going to happen. All right. Well, we've hit noon.

Alan, there's one more question from Alessandra. It's if the developer is handling the project should the HOA still seek additional protection?

Alan Tannenbaum, Esq.:
So if the developer's handling a project, that's the way I read it, you better make sure that the developer is bringing insured people to the site so there certainly should be a question that's asked. But Alexandra, there's probably much more to that question so it's nothing we're going to handle today.

Jon Lemole, Esq.:
Well, it would've also probably depends. Who's the contract with the engineer between? Is it between the developer and the engineer or is the developer making the contract between the association and the engineer? That would definitely come into play.

Alan Tannenbaum, Esq.:
Send us more information on that, Alexandra. So we will make this recording available. So if you want to send this along to anybody it'll be available probably in about a week on our website. And again, we're always happy to sit down with a group for an hour gratis. If you have a project coming up, you have questions about engineering contracts, we offer a free hour consultation so take advantage of it. If you're a manager, you want us to talk to your board, we'll do that, and just let us know. Contact Michelle. And we will get the certificates out for the managers who attended today and I hope you found it valuable. And we will see you next month with hopefully another topic of interest for you. Thank you, everybody.