NPPE Risk Management and Liability 4 — Questions and Answers
Question 1: An architect discovers a latent defect in a completed building five years after project closeout. Under most statutes of repose, when does the clock typically begin to run?
- When the defect is discovered
- When the architect's contract was signed
- Upon substantial completion of the project (Correct answer)
- When the first occupant moves in
Correct answer: Upon substantial completion of the project
Statutes of repose begin running at substantial completion, providing an absolute deadline for claims regardless of when a defect is discovered.
Question 2: A structural engineer is retained by a general contractor rather than the owner. If the structure fails and the owner sues the engineer, which doctrine most likely limits the owner's claim?
- Contributory negligence
- Economic loss rule (Correct answer)
- Comparative fault
- Indemnification
Correct answer: Economic loss rule
The economic loss rule generally bars tort claims for purely economic losses when no privity of contract exists between the plaintiff and defendant.
Question 3: Which type of professional liability policy covers claims made during the policy period regardless of when the alleged error occurred?
- Claims-made policy
- Occurrence policy (Correct answer)
- Umbrella policy
- General liability policy
Correct answer: Occurrence policy
An occurrence policy covers incidents that occur during the policy period, even if the claim is filed years later after the policy has lapsed.
Question 4: A project owner insists on inserting a 'consequential damages' clause allowing recovery of lost profits from the architect. What is the best professional practice response?
- Accept it since professional liability insurance will cover lost profits
- Negotiate to include a mutual waiver of consequential damages (Correct answer)
- Require the owner to obtain a performance bond
- Accept only if the fee is increased by 50%
Correct answer: Negotiate to include a mutual waiver of consequential damages
A mutual waiver of consequential damages protects both parties and is standard AIA contract language that limits exposure for lost profits, loss of use, and similar indirect damages.
Question 5: During construction administration, an architect observes a contractor installing non-conforming work but takes no action. This inaction most directly exposes the architect to claims of:
- Breach of warranty
- Negligent supervision
- Negligent omission (Correct answer)
- Strict liability
Correct answer: Negligent omission
Failing to act on observed non-conforming work constitutes negligent omission—a breach of the architect's duty to observe and report during construction administration.
Question 6: A design professional's errors and omissions insurance policy has a $500,000 per-claim limit and a $1,000,000 aggregate. If two separate claims of $600,000 each are filed in the same year, what is the maximum the insurer will pay?
- $1,200,000
- $600,000
- $1,000,000 (Correct answer)
- $500,000
Correct answer: $1,000,000
The aggregate limit caps total payout at $1,000,000 for the policy period, even though each individual claim exceeds the per-claim limit of $500,000.
Question 7: A client requests that an architect sign a contract with an 'indemnify and hold harmless' clause that includes third-party losses caused by the client's own negligence. The appropriate professional response is to:
- Sign it because professional liability insurance covers indemnification
- Refuse and walk away from the project entirely
- Negotiate to limit indemnification to losses arising from the architect's own negligence (Correct answer)
- Accept only if a 10% contingency is added to the fee
Correct answer: Negotiate to limit indemnification to losses arising from the architect's own negligence
Professionals should negotiate broad indemnification clauses down to cover only their own negligence, as most E&O policies exclude coverage for indemnification beyond the insured's own negligence.
NPPE Risk Management and Liability 4
An architect discovers a latent defect in a completed building five years after project closeout.
Under most statutes of repose, when does the clock typically begin to run?