Kia ora

With renewal time fast approaching we have two related articles in this issue of Communique. The first is a general update on the market context from our insurance partners Aon, and the second prompts some thinking about what level of cover you should obtain.Also another reminder that once you have renewed, the instalment dates are changing from last year’s dates. The first payment will be due on 15 December 2024, then 15 February 2025 and the final payment due by 15 March 2025.There are also two articles that have arisen from the recent experiences of some members related to difficult clients, and signing on behalf of clients.Last month’s Supreme Court decision in Beca v WCC has implications for the period of liability for contributions claims and the need to keep records, and so we have a brief article arising from that decision.Finally, a reminder about the NZACS’s new scholarship valued at up to $25,000. Applications close on 30th November and details can be found here.Ngā mihi

Renewal Update

Aon have provided the following commentary on the upcoming renewal process.Insurance renewal is due 1st December, and you will have already received some background information from Aon about the renewal process.The insurance market has been very dynamic over the past six months or so, and due to natural catastrophe losses reducing from prior years, insurers have increased profitability and invested back more capacity into the global insurance market. The good news for members is that we are now seeing premium costs start to come down.The premium level will depend on your fee income, but subject to that there are expected to be premium savings and pricing reductions on professional indemnity insurance for most members.If you are unsure about renewing or want to compare the cost for increasing your policy limits, then we encourage you get a quote. When you complete your renewal application, you will receive a quotation to review prior to the policy actually renewing.If you have questions or want to discuss insurance options available to you, contact the Aon team. Whilst the NZACS offer is broad with policy coverage that is one of the best in the market, Aon can often tailor the insurance to meet any specific needs you have.

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What Level of Professional Indemnity Insurance Cover Should You Obtain?

Thanks to NZACS Board member Natasha Markham for the following article on this timely topic.
PI insurance is a fundamental component of an architect's risk management strategy. It protects against claims of negligence, errors, or omissions that could result in financial loss for clients. Given the complexities and potential liabilities in architectural practice, determining the appropriate level of PI insurance cover is essential. However, there’s no ‘one size fits all’ approach to how much cover your practice should carry because of differing risk profiles.
Here are some things to consider when determining the right level of cover for your practice:

• Project Scope and Size: The scale and complexity of your practice’s projects play a significant role in determining insurance needs. Large-scale projects or those involving high-value properties usually carry higher risks. Architects working on significant commercial developments, multi-unit or complex residential designs should consider higher coverage limits to account for potential claims. 
• Contractual Obligations: Review your contracts to understand the level of responsibility and liability undertaken. Some contracts may stipulate specific insurance requirements or expand the architect's liability, which can influence the amount of cover needed. Ensure that PI insurance limits align with contractual obligations and client expectations.
• Past Claims History: Reviewing historical information on any past claims can provide insights into potential risks. Firms with a history of frequent or high-value claims might need higher coverage compared to those with a clean record. This historical perspective helps in understanding the risk profile and adjusting coverage accordingly.
• Clients: Consider your client size and their ability (and appetite) to fund litigation against you. Remember that with the long-stop period for claims, you could potentially receive a claim from past, or present clients and potentially even future owners, if a building is on-sold. Also, if the client is commissioning your services as a consumer (i.e. for personal or household use) the Consumer Guarantees Act means that you cannot put a cap on your liability and thus your potential liability is unlimited.
• Size of your practice, number and experience of staff, and amount of project work: As a practice size increases with more projects and more staff, there is typically a broader scope of work and a higher volume of client interactions. This increased exposure can elevate the risk of claims. Larger practices typically also deal with more complex and higher-value projects, which further increases risk. Consider too the expertise and experience of staff, and the robustness of your QA systems. Firms with less experienced staff inevitably carry a higher risk.
• Regional and Environmental Factors: Geographic location and environmental factors can also impact risk levels. Projects in areas prone to natural disasters, such as earthquakes, floods, or storms, or those in challenging environments such as coastal or geothermal areas, might involve higher risks and necessitate higher coverage. Understanding these regional factors helps in tailoring insurance coverage to meet specific local risks and regulatory demands.
• Multiple claims: Evaluate your likelihood of receiving more than one claim within a year. This may be higher if you are involved in multi-unit work, but exposure could also increase because you have more than one, independent but difficult clients. How much cover would be sufficient for these scenarios?
• Review Regularly: As your firm takes on larger or more complex projects, insurance requirements might increase. Regularly review and adjust coverage to match evolving business dynamics – don’t necessarily wait for renewal time.
• Get a quote: Remember you can request quotes for different levels of cover (and different companion policies) at any time during your insurance period. Depending on your circumstances, additional cover may not be that much more expensive. It’s worth noting that the minimum $250,000 cover is very low in comparison with other professionals.

Determining the appropriate level of PI insurance cover is a process that requires careful consideration of various factors including project scope, project types, contractual obligations, past claims history, client requirements, and the make-up of your practice. By thoroughly assessing these variables, architects can ensure they carry adequate insurance coverage to protect their practice against potential risks and liabilities. Regular reviews and adjustments based on changing circumstances and evolving project scopes are essential for maintaining an appropriate level coverage and managing risk effectively.
Further information on evaluating your coverage can be found on the NZACS website in the Members Area here, and there is also information in the online guide that accompanies the renewal process in the Aon portal.

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Vexatious Clients - the Warning Signs and How to Protect Yourself

In reviewing claim notifications, it’s often the case that claimants can be quite unreasonable in their expectations of what architects and designers can achieve. There are some warning signs that one should look out for which indicate that the client may turn on you when things don’t go as they expect. These include:

• A general ‘vibe’ of being difficult or demanding people. This can include a wide range of behaviours including aggressive fee negotiations, difficulties with any fee variation claims, making changes to the agreed scope of engagement, being overly critical of any errors, or a superior ‘know-it-all’ attitude.
• A lack of experience with construction projects, and in particular the architect’s role and responsibilities.
• Not fully engaging in the briefing process or not revising the brief when they are made aware that there is a mismatch between the brief and the budget.
• Frequently changing their mind or in the case of a couple or committee, not agreeing on decisions.
• Demonstrating unreasonably high standards for what is a relatively low-tech industry.
• Changing their mind or making changes during construction.

Experienced practitioners will be familiar with these and other signs, at which point they will at a minimum enact the following:

• Be very diligent about making sure they have a signed services agreement.
• Have a confirmed written brief, and record changes and the implications of these changes.
• Have good written records of agreed actions and any concerns such as the mismatch of brief and cost estimates.
• Educate the client in matters of contract terms and relationships. These include the acceptable and required performance standards, the communication and decision-making procedures, and how timelines, progress payments, variations, and monetary allowances are administered.
• A written report to accompany each workstage - note that this is a deliverable listed in the NZIA Agreement for Architects Services. Even on a simple project this could use the tasks listed in the AAS or the NZCIC Guidelines as a basis for the content. These reports should be adapted to the scale and complexity of the project in their breadth and detail. Such reports are a good QA process and could later protect architects and designers if the client becomes vexatious.
• Prior to construction they will take the time to explain in writing that the architect is not ‘supervising’ the contractor and is ultimately not responsible for the quality of their work.

In extreme cases the member may politely suggest that they don’t think they are the right match to the client. The sooner you do this the better because lots of protective actions don’t really stop an unreasonable person causing you grief.

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Signing as the Client’s Agent

A member had some issues recently because they had signed an ACENZ Short Form Agreement (SFA) as an agent for their client (who was overseas) to procure some engineering services. The engineers didn’t get paid by the client and so they are relying on Clause 7 of the SFA to pursue the architect for the unpaid fees. Of course, this is not a great way to build long-term relationships but is a reminder of the risks of acting as an ‘agent’.In case you haven’t read the ACENZ SFA fine print, Clause 7 says the following:…Where this Agreement has been entered by an agent (or a person purporting to act as agent) on behalf of the Client, the agent and Client shall be jointly and severally liable for payment of all fees and expenses due to the Consultant under this Agreement.While there is no doubt that the client is ultimately liable, it’s best to avoid getting embroiled in this situation in the first place. This is much more achievable these days when electronically signing a document from afar is relatively easy.In the case of an architect’s role as agent in a contract like the NZIA Standard Conditions of Contract the limitations of the agent’s liability are clearly spelt out.

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Beca v WCC – Contribution Claims and Limitation Periods

Thanks to Board and Claims Committee member Colin Orchiston for preparing this summary of the relevant material from this case.In September 2024, the Supreme Court decided that a ‘contribution claim’ does not fall within the 10-year Building Act longstop. A contribution claim arises if a defendant is found liable, but then seeks a recovery from those who it considers have contributed to its liability.An illustrative example would be when a client successfully sues a builder who built a building to your design. The builder then says they are only liable because they built the work to your design; and therefore you should contribute to any settlement or judgment of the claim against them. (You are then called a “Third Party”)Before this latest decision, there was the possibility that by the time the builder was found liable, 10 years may have passed since your design was completed, and therefore you would be outside the period during which you have a potential liability under the Building Act.Now that the Supreme Court has decided the matter, that builder would have 2 years from the date they are found liable in which they can bring a claim against you.NZACS has long suggested that you keep your job records for 12 years at least. In the above example, it might be (say) 2 years after your design before it is built, 9 years after construction when the builder is sued, another 2 years or more to get that through the courts, and now the builder has another 2 years to seek recovery from you. So it might be as long as 15 years before you learn that you might have a claim against you. Note that this timeline would be an unusual situation but is possible. Of course if you became aware of a possible claim at any stage you should notify your insurer.Thank goodness for digital data storage.