Iberian and Latin American brief on Architects and Engineers Civil Professional Liability

Assets of architects and engineers are at risk when faced with a claim from a client or third party seeking to establish liability arising from negligent acts or omissionsor due to breach of obligations established by contract or imposed by law. Roles and obligations The obligations and liabilities that may arise for architects and engineers (a&e) depend on their precise role during a construction project. For instance, a&e may act as developer of the project/building, draftsperson, constructor and/or project execution manager. Construction projects are carried out in stages, and this affects the liability regime of a&e. At a first stage, a developer decides, promotes and funds (with its own resources or those of others) construction work for his own benefit or for later sale or transfer to third parties. Developers are mainly called on to assist with background information and documentation required to draft the project and authorize subsequent modifications. They may also arrange and acquire licenses and permits required to develop the project, take out insurance policies for themselves, and sign the final handover document. At a second stage, a qualified architect or engineer, commissioned by the developer and subject to technical standards required by law or contract, designs the intended construction or building and graphically outlines it in blueprints, drawings, computer models or scale models reflecting the overall design, form, function and distribution of each area to be built. This is normally presented for approval to the owner, developer or client, as well as to official state agencies to obtain licenses or permits required by law. This stage, prior to execution of the work, involves various responsibilities including execution of technical studies of the structure, facility, urban planning or buildings. This is reflected in precise technical drawings along with plans for compliance with applicable regulations, budgets, terms and conditions of the project. In the execution stage, a&e may lead or coordinate the correct execution and disposal of materials to meet the technical, aesthetic, urban planning and environmental requirements agreed in the contract and as required by law. The main obligation at this stage consists of performing the works in accordance with the agreed project and instructions, as well as with applicable laws, in order to achieve the intended result,

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such as a building or a bridge. Human and material resources are also allocated at this stage, commensurate with the complexity of the construction work and the geotechnical characteristics of the terrain, to enable a&e to fulfill and guarantee the quality and timing conditions required by the project. At this stage, additional care should be taken that the sub-contracting of outsourcing companies is within the limits of the main contract. Once the works have been handed over, a&e guarantee the durability, quality and stability of the construction work, as required by contract or law. Principles of liability under Civil Law In the absence of specific regulations, professional liability is normally regulated by the general civil liability principles of the Civil/Commercial Codes, varying slightly in each jurisdiction. Additional civil causes of action against a&e may also be found in: i) Consumer Codes, such as in Brazil, or ii) in statutes seeking to regulate the profession, as is the case in Argentina, Bolivia, Brazil, Chile, and Peru. In Mexico, the Federal Civil Code is applicable throughout the Republic where there are federal interests involved, as well as Civil Codes in force in each of the 32 states and one Civil Code applicable to the Federal District. Some of the claims more typically made against a&e involve negligence in respect of design errors, construction defects, misrepresentation, inaccurate advice, violation of confidentiality, breach of statutory or contract provisions, inadequate or insufficient knowledge, lack of appropriate scoping of human or material resources, as well as breaches for other obligations inherent to each stage of the project. Architects and engineers are responsible for defects in design when the planned structure or project does not meet the agreed professional standard, including the projects purpose and nature, quality, or applicable urban planning regulations or technical engineering design standards. Architects and engineers acting as project managers are responsible for the duty of supervision, direction and control of the material execution of the works. They are also responsible for inspecting the use of materials and mixtures, ensuring that their proportions, measures, quality, suitability and conditions conform to the projects supporting documents, in order to achieve the objective of the structure or building. To accomplish this, a&e are generally obliged to carry out any tests, trials or analysis deemed necessary to confirm the suitability and quality of materials before authorizing their use on site. However, in jurisdictions such as Spain, this is the responsibility of the quantity surveyor rather than the architect or engineer. In the execution stage, a&e are commonly responsible throughout the region for partial or total collapse of a structure if it arises out of construction defects, ground

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problems (e.g. massive seismic movement) or poor quality materials. In Venezuela and Spain for instance, a&e can be found liable if works are partially or completely destroyed as a cause of construction defects or ground problems manifesting within 10 years of the completion of work. In most jurisdictions if there are obvious defects but the creditor is satisfied enough to accept delivery of the structure, a&e may be relieved from liability. Best endeavours vs. result obligation in contractual liability Circumstances in which a&e may be relieved of contractual responsibility depend on whether their obligations are considered as best endeavours or result obligations. A breach of contract, as the cornerstone of contractual liability, will depend also on the type of obligation assumed by the architect or engineer. Architects and engineers are mainly subject to result obligations under contract because not only do they undertake the duty to perform a diligent activity but they commit to guaranteeing a result as well (i.e. a building, a structure, a construction, etc.). This has an impact on the burden of proof. Result obligations arise when individuals are obliged to achieve a particular objective by law or contract provisions, either by action or omission. In this case, legal liability is practically automatic because the victim need only prove that the objective has not been achieved and that damages followed from the breach. Best endeavours obligations arise when individuals are obliged by contract or law to undertake a diligent activity to use all reasonable and diligent means in order to obtain a result, which in no circumstance can be 100% assured, such as the obligations of a medical doctor or a lawyer. Burden of proof The burden of proof varies according to the type of obligation undertaken by professionals and on whether their liability arises under contract. The most common burden of proof issues in respect of a&e arise with regard to contracts that place these professionals under result obligations. When a building/construction or engineering project has not been completed by the handover date, there may be a breach of contract per se. In this case, the claimant carries the burden of proof of the existence of a contract, the obligations breached, the extent of damage, and evidence that the result has not been obtained.

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Architects and engineers may escape liability by proving that the result has in fact, been obtained or that a fortuitous event, force majeure or a third party intervened, causing the damage or delayed handover of the final project. Force majeure or fortuity may be distinct notions in some jurisdictions but in essence are understood as an external, unforeseen and irresistible event beyond the control of the architect or engineer, which prevents them from performing their obligations under contract or law. Force majeure intervenes to remove responsibility only if the failure to perform those obligations could not be avoided by the exercise of due care. Under non-contractual or tort law, generally it is the claimant who has the burden of proof to establish the extent of the damage and that a causal link exists between damage and negligence. Under tort, a&e may escape liability by providing sufficient evidence of their diligent professional behavioror that force majeure intervened, as set out above. Quantum In each country the indemnity is limited to the actual damage, loss of profit and moral damage suffered and proven by the claimant. Engineers and architects may be held responsible for personal injury and property damage, business interruption, moral damage and defence costs. Damages will only be allowed if suffered as an immediate and direct consequence of the actionable fault or breach. In contrast with the United States, this means that punitive damages generally are not permitted in the region. It is not possible to estimate an average on quantum claimed in the region, since it is common that architects and engineers professional services contracts contain arbitration clauses with strict confidentiality provisions. This may explain the general lack of case law in respect of a&e liability, especially in Latin America. With regard to assessing quantum in court, expert opinion can be crucial, especially in Brazil and Spain where courts tend to accept experts opinions in their judgments. However, parties have the right to retain their own expert to challenge the opinion issued by the courts appointed expert. In addition, in the rare event that the victim proves that the architect or engineers breach of contract has caused moral damage, courts have discretion to assess the suffering and the supporting evidence. Moral damage may arise during the development of the construction project, for example, from unbearable noise or high quantities of dust. Moral damages may also be awarded under non-contractual liability.

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In many jurisdictionsincluding Bolivia, Brazil, Chile, Costa Rica, Mexico, Paraguay, Spain and Venezuelathere is no uniform body of law regarding the quantum of moral damages. Courts are free to assess and appraise moral damage based on the evidence before them. It is worth noting that Spains Construction Planning Act assumes joint liability for architects, engineers and other agents involved in a construction project. They are each held individually liable up to the full amount of indemnity awarded. However, there has been a recent trend to individualise responsibility for each agent, when possible. In Portugal for instance, the case law available shows that awards for noncontractual liability depend exclusively on damage suffered and proved by the third party, without minimum or maximum limits of indemnity. Courts usually rely on similar case-law by analogy. Professional indemnity litigation in the region Latin America, particularly Bolivia, Colombia, Mexico, Peru and Venezuela have little tradition of professional indemnity claims, especially with respect to a&e. However, in the last ten years the claims experience has increased notably in Argentina. There is general recognition in Argentina that professionals should purchase a professional liability policy to protect their assets due to the incidence of professional liability cases coming before the courts. In Brazil medical malpractice is increasingly litigious, however, claims involving other professionals such as a&e are unusual. In most Latin American countries, the parties to professional indemnity disputes usually seek industry experts to resolve their disputes, usually by way of arbitration. In Bolivia, it is common to resolve pi disputes by mediation or negotiation, sometimes after a court procedure has been initiated. In Brazil it is unusual to solve professional negligence claims in arbitration tribunals, the victims usually file court claims and disputes are often resolved by settlement agreements within or prior to proceedings. In Mexico, professional civil liability principally concerns medical malpractice and many disputes arising against medical doctors are resolved in the National Medical Arbitration Commission. In contrast, there is little case law on a&e. In Bolivia, claims of professional liability are generally handled in the criminal justice system, leading potentially to additional claims for civil liability. The explanation appears to be that civil procedure tends to be long and complicated and does not impose the same pressure on defendants as criminal prosecution, where it is sometimes procedurally easier for claimants to obtain evidence to consider whether proceeding before the civil courts for an award of damages would be justified. This happens in Spain, Colombia, and other jurisdictions as well.

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In Peru, incidence of professional claims is low. Case law is dispersed, and inconsistent. Courts have been reluctant to award significant compensation in cases of professional negligence, possibly because of difficulty in proving negligence in cases where the professional is subject to a best endeavours obligation, although this can change when a case is picked up by public opinion and gains a high media profile. PI Insurance Professional indemnity insurance products are generally available in Iberia and most of Latin America. However, that does not mean that professionals buy it. In Bolivia and Costa Rica for instance it is yet uncommon for a&e and other professionals to protect their professional risksperhaps this explains the low claims experience and usual quick resolution of disputes. In contrast, Brazil is probably the fastest growing market for a&e pi cover. Chile has seen significant growth in professional liability policies due to a greater awareness of the risks of professional practice. However, in other countries in the region the absence of an adequate legal framework and nonmandatory professional indemnity insurance has held back growth of the PI insurance industry. In most Latin American countries including Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Mexico, Paraguay, Peru and Venezuela, a&e are not required to take out obligatory professional indemnity insurance. In respect of Brazil, mandatory civil liability insurance is in force for urban contractors but these policies exclude the liability of e&a, who are not required by law to be insured. In Bolivia, enactment of compulsory liability insurance for a&e is being discussed following an incident in Santa Cruz where the well-known Malaga building collapsed, causing the death of 17 people, including a&e among the victims. The Bolivian Code of Commerce invalidates professional indemnity policies when the insured, even if qualified as an a&e, is not legally authorized to practice the profession. In Spain, the Insurance Contract Law enables the implementation of compulsory civil liability insurance for the practice of specific activities determined by the Government. There has been no uniform development of this provision with regard to engineers and architects at national level, but at regional level there has been some regulation and each professional association sets its own statutes. For example, in Catalonia, Andaluca and the Basque country, a&e are required to take out professional indemnity cover, when they practice as individuals or in partnership. Spain has also implemented a controversial "Omnibus" Law 25/2009 which introduced new features related to waivers of approval for construction projects. This sets an obligation to take out compulsory civil liability insurance for a&e acting individually and in professional associations.

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In respect of a&e professional partnerships in Spain, the Professional Companies Act 2/2007 requires compulsory professional liability insurance to cover responsibility for activities performed under a corporate purpose. In Madrid, members of the Architects Association must carry civil liability insurance policies, although the required level of coverage is minimal and professionals tend to top it up. In Portugal, architects are required to obtain non-contractual liability insurance cover for the execution and coordination of construction projects, regardless of the legal relationship between the architect and the developer or owner of the project. Although this insurance only covers third party damages caused by negligence, the obligation does not prevent architects from taking out additional insurance cover for their activities under contract. It is normal practice in the region for a&e involved in public tenders to take out professional liability insurance policies as a contractual condition for doing business with public or private sector bodies. Professional Associations Professional associations play a significant role because they issue standard Codes of Ethics and, in some jurisdictions like Argentina, Bolivia, Colombia, El Salvador and Spain, a&e cannot practice the profession without their official permit. Professional associations usually have disciplinary powers, including temporary or permanent suspension, but they have no jurisdiction over matters of civil professional liability. Most professional associations have developed formal dispute resolution centres for ethical or disciplinary proceedings. For example, the Chilean Architects Colleges National Ethics Court rules on violations of the Code of Ethics, as do the Brazilian College of Urban Planners and Architects, the Bolivian College of Architects and the Colombian National Professional Council of Architecture. The Costa Rican Association of Engineers and Architects, the Federation of Mexican Architects Associations and the Peruvian Architecture Council also regulate such matters. Final remark The growing presence of professional liability insurance in Latin America entails the usual paradox: this type of insurance protects professionals against valid claims, while simultaneously exposes them to more claims. This is explained by the fact that claimants tend to litigate against professionals only when they have some confidence that there is someone with deep enough pockets - those of the insurance company to go against.

Kennedys is a trading name of Kennedys Law LLP. Kennedys Law LLP is a limited liability partnership registered in England and Wales (with registered number OC35321)