What "duty to defend" means for design professionals
In what is becoming an alarming trend, clients are often requesting that design professionals agree to assume a duty to defend the client in any claim brought against the client that relates to the design professional’s services. Agreeing to defend your client, however, is an unduly burdensome risk on the design professional and should be avoided to the greatest extent possible.
As opposed to a properly structured indemnity obligation, where the design professional agrees to reimburse the client for damages it incurs as a result of the design professional’s negligence as determined by the appropriate judge, jury or arbitrator, the duty to defend requires the design professional to actively defend its client from the outset of a suit regardless of whether the design professional has actually violated its standard of care. The mere allegation that the design professional's services are in some way the cause of the alleged damages is enough to trigger the duty to defend. Even if the design professional is successful in defending itself and the client, the design professional is still responsible for the full cost of defense, which in some instances can exceed the underlying damages claimed in the lawsuit. Further, where a design professional assumes the duty to defend, the defense costs incurred in defending the client would be borne by the design professional directly because they are not typically covered by a design professional’s professional liability policy.
This nightmare played out in UDC-Universal Development L.P. v. CH2M Hill, 181 Cal. App. 4th 10 (2010). In this case CH2M Hill (“CH2M”) agreed to deliver engineering and environmental planning services to developer UDC and agreed to indemnify and defend UDC in any claims brought against UDC relating to CH2M’s services. Although CH2M was ultimately successful in its defense and was found not to be negligent, the court found that, nevertheless, CH2M was required to pay all of UDC’s defense costs as a result of agreeing to the duty to defend.
To make matters even more complicated, in a few states merely agreeing to indemnify a client also includes the duty to defend, even if the contractual language is silent on the duty defend. Until recently, California was one such state. California Civil Code Section 2778 (“§ 2778”) mandates that in a contract where a party agrees to indemnify another party, absent a contrary intention in the contract, the party agreeing to indemnify must also defend the other party in actions by third parties. As such, unless disclaimed, the duty to defend was assumed to be included in the agreement to indemnify in California.
Recognizing the undue burden this statute placed on design professionals, the California State Assembly passed Senate Bill 496 on April 28, 2017. The bill limits the design professional’s obligation to pay the client’s defense costs to an amount in line with the design professional’s proportionate fault. While this is a clear improvement for architects practicing in California, it is unclear how the new law will impact a design professional’s duty to defend its client. For more information on the statute, visit AIA California Council's overview of the bill. It should also be noted that the bill is only effective for contracts signed on or after January 1, 2018.
For a more detailed discussion of this issue, please read The duty to defend: How to avoid this serious risk.
AIA has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice.
This article was contributed by the AIA Risk Management Program. The Risk Management Program posts new materials and resources on the first Thursday of every month.