INNOVATION May-June 2017

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Professional Liability Risk and Contractual Compliance in a Global Market

Managing Global Engineering, Geotechnical and Construction Risks

Benjamin Kent, Rob Selnes, Angus Smith

skill and care, civil law often mandates some form of strict liability, under which the firm is responsible for damage and loss caused by acts and omissions regardless of culpability. One form of strict construction liability under civil law is decennial liability, under which an engineering, geotechnical or construction firm is liable for post- construction defects—also referred to as inherent or latent defects. Used in many former colonies of France, Portugal and Spain, decennial liability—which suggests a term of 10 years but can last much longer— usually attaches at the point of substantial completion or handover to the owner, although some variations by country and code exist. Australia has imposed an even higher standard of care on design professionals. Under the 1974 Trade Practices Act (TPA) and 2010 Competition and Consumer Protection Act (CCPA), consumers can sue service providers for practices they deem to be misleading or deceptive, regardless of intent of the firm performing the services. It is very rare for an engineering,

With greater global development, engineering, geotechnical and construction firms are benefiting from increased work in Canada and around the globe. In China, India, Turkey, Russia, Brazil, the Middle East, North Africa and elsewhere, engineering, geotechnical and construction firms seek to capitalize on opportunities from strong economic growth, growing populations, urbanization, greater infrastructure demands, and the increasing use of alternative forms of project delivery and funding, including public–private partnerships. Such global expansion holds great promise for these firms to increase their revenues after years of lackluster growth. But compliance with a broad set of diverse and often contradictory laws and regulations around the world can be a significant challenge. It is imperative that engineering, geotechnical and construction firms and their risk managers be aware of the risks inherent in operating globally and be familiar with the solutions available to mitigate those risks.

Strict Liability Historically, engineering, geotechnical and construction firms have relied on “global” coverage wording in their professional liability policies to manage international risks. But as they have expanded, many firms have come to recognize that, without addressing local and country-specific insurance requirements, coverage could be insufficient and—in some cases—null and void. This is particularly important as local regulators increasingly require proof of insurance, a trend we expect to continue in 2017 and beyond. For global engineering, geotechnical and construction firms, it is important to recognize the difference between common law and civil law, which is used in many markets outside of Canada. Common law relies on case law to settle disputes related to engineering, geotechnical and construction services; civil law relies on prescribed written code and binding rules and regulations. While common law attaches liability to failure to perform professional services in accordance with generally accepted standards of professional

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