September 2017
PI insurance claims are in response to civil claims.A civil action is a normal judicial claim in response to a civil wrong, such as a breach of contract or a breach of a tortious duty of care or defamation/trespass, etc. These are among the standard negligence acts or omissions which architects typically face sometimes in their career. The judicial test for a civil claim is the balance of probabilities, and the remedy is typically damages in the form of a money award.A civil action is distinct from a criminal claim, which relates to a criminal offence.
The purpose of the Act is to encourage claimants to make claims for monetary or other relief without undue delay, by providing defendants with defences to stale claims.Simplistically, architects would be concerned with two, or perhaps three, important dates:
Limitation defences:
The diagram below illustrates the general nature of the various limitation periods under the Act:
The Limitation Act 2010 [s.59] provides that the Limitation Act 1950 continues for all acts or omissions occurring before 1 January 2011.
In commercial contracts, it is possible to contract out of the Limitation Act [S41]. NZIA ASS provides for a 6 year limitation period, but this can be shortened.A limitation period in contract that has a 6 year liability limitation commencing from the date of the act or error in which to bring a claim would not be a breach of the insurance conditions because the liability assumed in contract does not create a liability beyond the statutory time limitation.If the terms of your contract for service extend the limitation beyond the Building Act or Limitation Act(s) then you may be in breach of your insurance contract conditions in the event of a claim.Because there are rights and remedies for both parties already in legislation, insurers are very reluctant to accept contract agreements that change the present terms in respect of limitation.Your PI insurance cover (current at the time of a claim):
If your client insists on altering the limitation period in relation to your liability, you need to seek both legal advice and the advice of your insurers.A project-specific policy could be arranged through NZACS/Aon as a stand-alone policy with the period of insurance being the period of the project plus any run off requirements.If specific cover is required for a specific project and for a specific period, then the initial costs of that cover, and the ongoing costs of maintaining it for the required period (perhaps including renewing it each year), are a cost which is specific to that project.If specific project insurance is required, consideration should be given to who meets the costs and management of maintaining it, and what happens if those arrangements fail.
The favourable settlement of many claims has been dependent upon the application of the defences available within the Limitation Act.It important to retain all relevant documentation for at least 10 years from the date of the last project involvement. Such documentation may provide the essential evidence necessary to support a valid defence to a money claim.Access to, or attendance at the site during construction will be a primary source of evidence in respect of claims based on observation and design. If you were not a party to some aspect of construction, then is good to have evidence that you were not involved, but even better to have evidence that you were not required to have been involved. And the dates matter: work done before and after your involvement needs to be identifiable.It often happens that architects attend to the project some years after their earlier involvement. NZACS frequently sees examples of this causing subsequent litigation risk and distress to architects. It is very important to keep accurate records of what your attendance on the project involved, what was the reason for it, what was done/seen/commented on at and as a result of attending the site or reviewing the files. These seemingly innocent attendances have the potential to “reset” the “date of the act or omission on which the claim is based”, and provide a claimant with evidence in support of their late knowledge claim. BEWARE!
It is not unusual for a claim against an architect to be brought on the grounds of observation, but not on the grounds of design. This might be because the design was ok but the execution of it was not; but it is often because the design was completed more than 6 years ago, but the observation was within that period.In Body Corporate 360683 v Auckland Council [2017] NZHC 1785, the opposite happened. The owners of a residential apartment building claimed against 8 parties for alleged faulty design and construction. The architectural services, as pleaded in the original statement of claim, were to prepare plans and specifications. An amended statement of claim was later filed to include onsite observation. The Court was required to determine whether the late inclusion of onsite observation amounted to introducing a new cause of action, or merely added particulars in relation to the scope of architectural services.The Judge found that the observation claim was a new cause of action, and noted that the limitation period is in relation to the date on which the claim is brought, not when the proceeding is first filed in Court.Whilst the original statement of claim issues were within time in relation to design issues, when the later amendment was lodged the observation issues were out of time. The new cause of action was struck out.