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Case Study April 14, 2020

Design disaster

Problematic designs result in a complaint of negligence and hundreds of thousands of dollars in repairs

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An HVAC and plumbing engineer faced a colossal repair bill as a result of water leaks following the completion of a new apartment complex build.

The insured, an HVAC and plumbing engineer, was contracted to design a plumbing system for a new apartment building, but problems arose when water began to leak from the newly installed system, sparking an investigation and ultimately a significant claim.

Discovering the issue

When new tenants were faced with water leaks in their recently completed apartments, the general contractor in charge of the project began an investigation into the root cause. As a result, they discovered that the leaks were originating from breaks in drain lines at certain joints in the plumbing system.

It was alleged that the breaks had been caused by the insured’s failure to provide for pipe movement when completing designs for the project. Additionally, the company was said to have overlooked shrinkage in the framing and thermal expansion/contraction, which resulted in movement between the pipes and framing. This meant that extensive repairs had to be carried out on the plumbing systems, which would take nearly six months to complete.

The insured faced a number of exposures as part of this claim, one of the most critical being the question of negligent design. If found to be true, this allegation could result in substantial liability.

Expert investigations

An analysis and investigation completed by counsel for the claimant found that the insured was in fact negligent in its design and therefore did have exposure for damages.

Luckily, the insured had purchased and maintained a professional liability policy from CFC built specifically for architects & engineers which includes comprehensive coverage for errors and omissions inclusive of contingent bodily injury and property damage, breach of contract, subcontractor’s vicarious liability, pollution liability as well as legal coverage. As the insured was negligent in their design, the claim was triggered under the errors and omissions section.

The initial demand from the claimant was more than $1,000,000. This included costs of $870,000 relating to the plumbing issues and a further $200,000 in damages for the late delivery of the apartments.  

A successful settlement

In order to help minimise damages, and bring the matter to a close quickly, CFC’s claims team and the insured opted to pursue settlement and within three months mediation was scheduled. They succeeded in resolving the matter at mediation for $400,000, less than half of the original demand against the engineering company.  

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