Do design professionals have a fiduciary relationship with their clients?

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The question of whether a design professional is a fiduciary to their clients has been tested over the years. A recent movement has raised this question again that, if successful, would have broad legal implications for licensed design professionals.

It’s not a new argument, and one that’s been argued before, although those behind this recent initiative assert it’s new and the result of a long-standing systematic error in the law.

As an advocate for the design community, Willis A&E’s position is that, design professionals do not have a fiduciary relationship with their clients, and should not accept this exposure as it would be a liability assumed under contract, unrelated to standard of care requirements and could, therefore, create an uninsurable risk to the design firm.

For a bit more color and legal input on this subject I went to Douglas Palandech Esq, of the Chicago law firm Foran, Glennon Palandech Ponzi & Rudloff. Doug concentrates his litigation practice on construction, design professional and legal liability. He’s tried numerous cases for design professionals – and has twice defeated claims for breach of fiduciary duty against design firms at the trial court level.

According to Mr. Palandech:

This is an ill-conceived initiative and the law has been very consistent in addressing this notion; there is nothing in the owner/design professional relationship which, by itself, gives rise to a fiduciary relationship or to legal responsibilities attendant on the establishment of such a relationship. To the contrary, the relationship between owner and designer is commercial and arm’s length. That conclusion is both irrefutable and court recognized.

We note as well that standard design professional insurance may not afford coverage for claims which are premised on breach of a fiduciary duty. Furthermore, to the assertion that there is some ‘long standing, systemic error [in the law] that has never been challenged’ is simply false – and the statement is in fact a double error: 1) there is no long standing systemic error in the law respecting the absence of such legal relationship between owner and designer, and 2) there have been many attempts to assert this basis of legal liability against designers by owners, all of which have been judicially rebuked.

So, why aren’t architects and engineers subject to fiduciary duties?

There seems to be clear legal precedent supporting the assertion that design professionals do not have a fiduciary relationship with their clients, and that it’s not typically covered under an A&E professional liability policy. But why is that? Why don’t architects and engineers have a fiduciary responsibility to their clients – when lawyers and doctors do?

According to Mr. Palandech, breach of fiduciary duty is a catch-all phrase the law uses to describe when a trusted person [i.e., a fiduciary] commits a wrong against the person who entrusted him or her. He goes on to say:

As a general rule, any person who is in a special relationship of trust may be considered a fiduciary. Some accountants fill this role, or any person taking care of a sick, dependent person. So the question is whether the relationship, by its very nature, is whether one person has as her/his mission the responsibility for the other’s well-being as a matter of first importance. Trustees and guardians always do, as do lawyers. Many, many relationships do not have this quality. Anywhere and everywhere there is an arm’s-length business relationship where one party receiving consideration for a service, there is no such thing.

If you buy a car from XYZ Dealership, XYZ probably knows more than you about the Model ABC, but the ‘relationship’ is not fiduciary, it is simply an arm’s length deal where one party has an interest in selling the product and the other receiving the product. An architect is much the same way on a service plane—the owner needs design and administration services for a given project. The architect can deliver on that need.

Again, an arm’s length, commercial relationship where there is not even a hint of the architect being in a position of safeguarding the owner’s interest as a matter of first importance. To the contrary, the architect needs to look out for his/her own interest first in the performance of the service.

And why isn’t fiduciary liability covered by professional liability insurance?

As Mr. Palandech stated, design professionals’ insurance may not afford coverage for claims that are premised on breach of a fiduciary duty. The reason for this is that all A&E professional liability insurance policies contain an exclusion for contractual liability that essentially states:

This insurance does not apply to and the Company will not pay Damages and/or Defense Expenses for any Claim based upon or arising out of Liability of Others Assumed by Contract – The liability of others assumed by any Insured under any contract or agreement – unless such liability arises as a result of a Breach of Professional Duty and would have existed absent such contract or agreement.

In other words, accepting the role of a fiduciary by contract would arguably take the A&E over and above the standard of care and therefore would not be covered by PL insurance.

Do not assume fiduciary liability

Given these insurability concerns, if an owner-drafted agreement contains any language creating a fiduciary liability for the design professional, Willis A&E’s advice is to NOT accept this language. For example, if an owner drafted agreement has the wording “trust and confidence,” we would recommend striking this language — or at the very least revise to add the language “but not as a fiduciary.”

We’ve found that most owners will accept these revisions and understand that nobody benefits from an uninsurable agreement. These same owners often appreciate when the design professional pushes back on uninsurable language in their contracts, given their understanding that the design firm’s professional liability insurance policy is third-party coverage benefiting the owner — and most likely the only asset the owner can look to in the event of an error or omission on the part of the design professional.

Disclaimer:

Willis Towers Watson is not a law, accounting or tax firm and this presentation should not be construed as the provision of legal, accounting or tax services or advice. Some of the information included in this presentation might involve the application of law; accordingly, we strongly recommend that audience members consult with their legal counsel and other professional advisors as appropriate to ensure that they are properly advised concerning such matters. Additionally, material developments may occur subsequent to this presentation rendering it incomplete and inaccurate. Willis Towers Watson assumes no obligation to advise you of any such developments or to update the presentation to reflect such developments.

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About Dan Buelow

Dan Buelow is the Managing Director of Willis’ Architects & Engineers practice, based in Chicago, where he an…
Categories: Claim & Risk Control, Construction, Directors & Officers, Fidelity, Risk Culture | Tags: , ,

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