Source: Victor O. Schinnerer & Company, Inc.
From 2001 to 2010, approximately 20% of claims involving buildings included allegations of mechanical and electrical issues. Many of these involved mold (which is more of an issue for mechanical engineers than electrical engineers). For the same time period, the average indemnity payment on claims filed against mechanical and electrical engineers involving plumbing, HVAC, or fire protection issues was $112,513. The average indemnity payment for claims against mechanical and electrical engineers alleging electrical issues during this same period was $94,176. Mold claims accounted for 9% of the total claims frequency and 10% of the total claims severity for all claims under our special problems category. The average indemnity payment was $128,617. Against just mechanical and electrical engineers mold claims accounted for 14% of the total claims frequency and 27% of the total claims severity for all claims under our special problems category, with an average indemnity payment of $140,931.
Here are examples of mechanical and electrical claims handled under the Schinnerer and CNA professional liability insurance program.

Claims Study #1

An architect retained an engineer to provide mechanical engineering services for a post-hurricane renovation of a country club. The client performed value engineering services without the engineer’s knowledge or approval. Problems with the HVAC system and with moisture and humidity began the day the club re-opened. The club filed a $1.9 million claim alleging that water infiltration, moisture, and humidity had caused mold and mildew in the ductwork and elsewhere in the club. The engineer was able to prove that had the club been constructed according to his design the system would have worked fine. The engineer kept detailed letters written after the client initially began to complain. The letters clearly documented the missing components, their functions, and why they were needed. In mediation the engineer settled the claim for a $30,000 contribution toward a global settlement. The engineer’s excellent documentation and record keeping saved more than $450,000.

Claims Study #2

An engineer provided MEP engineering services for a new museum for a Native American tribe. The tribe’s lawsuit against the design team commenced immediately after the tribe retroactively amended its one-year statute of limitations to seven years. The tribe is legally a sovereign nation with its own court system and its own rules and judges.
The tribe’s $5.5 million claim against the MEP engineer included several allegations: that the ductwork was undersized, conflicted with the design elements, and was a possible source of particulate contaminants; that there
was a failure to provide adequate air for ventilation during the summer and adequate heat in the winter; that copper piping was subject to corrosion; that there was insufficient humidification; and that return and supply ducts were reversed. Although there were possible defenses involving “betterment” and client-initiated changes, there were also errors, omissions, and ambiguities in the engineer’s design. In addition, there was great concern about having the case decided in tribal court.
After a long and difficult four-day mediation, the design team settled for a total of $5.75 million. The MEP engineer paid $2.1 million and expenses exceeded $115,000. The team’s defense counsel opined that although there were some problems with the project, the ultimate decision to settle was greatly influenced by the venue of the action more than the merits of the claims.

Claims Study # 3

An architect retained a northeast engineer to provide mechanical and electrical engineering services for five assisted living facilities in the southeast. All five facilities subsequently experienced mildew, mold, and high levels of humidity. An indoor air quality evaluation reflected relative humidity levels above 65%. The engineer admitted that he had not taken the area’s high humidity into consideration when he performed his calculations. The system as designed did not have a means of controlling the pressure differential in the building, which was demonstrated by smoke tests conducted during an inspection. Negative pressure in the buildings allowed moist air to enter, and unconditioned air from the outside was allowed to enter the buildings through the fresh air intakes. The claim settled for $950,000 with legal expenses of $26,000.

Claims Study #4

An engineer provided mechanical and electrical design services under contract to an architect for a construction company’s headquarters. A major feature of the project was an open-space atrium. During design the size of the atrium was increased. As a result of the increase the smoke control system should also have been increased, but the engineer did not do so. The system did not meet code, resulting in the need for a redesign and additional construction. The claim settled for $575,000 and expenses were $180,000.

Claim Study #5

An engineer provided the HVAC design for a very high-end home located in a forest. The house contained an extensive collection of art and antique furnishings that required very tight control of humidity. Because the location of the house made it impossible to deliver oil, propane, or natural gas during the winter months, electricity was the only option. Many years after construction was completed the homeowner filed suit against the designers and builders. Included in the multi-million dollar claim was an allegation regarding the increased costs of electricity from $50,000 to $85,000 per year. Experts determined that the increased costs were due to the homeowner’s insistence on leaving nine chimneys open and failure to properly operate the system. The claim settled in mediation for $25,000 and expenses were $56,000.

Claims Study #6

An engineer provided the MEP design for a hospital addition. The general contractor filed a $30 million suit for delays. Some of the allegations involved problems with the HVAC system, which did not produce the intended level of airflow. An expert, retained on behalf of the engineer to assess the HVAC design, agreed with the hospital’s expert: the system was not properly designed. The total claim settled for $19 million, with the MEP engineer contributing $1.5 million. The engineer’s expenses were $120,000.

Claims Study #7

An electrical engineer designed 17 illuminated arches to span a downtown street using fiber-optic and fluorescent light. Upon completion the city was dissatisfied with the arches, claiming the bulbs were too dim, burning out, and malfunctioning. An independent testing company identified that heat was building up in the pole bases, causing the failure of the illuminated arches. The manufacturer stated that fiber-optic cable was not suitable and recommended alternative lighting. The city claimed $2 million in damages. Although it was believed that the electrical engineer had some responsibility because of a lack of understanding and experience with fiber-optic systems, the city was also partially responsible for not providing a steady power supply without surges. The city also painted the arches and lights black, which made them impossible to see against a night sky. In addition, the city selected the low-bid contractor who had no experience and who did a poor job constructing the project. The case settled for $1.2 million, with the electrical engineer contributing $900,000. The engineer’s expenses were $100,000.

Claim Study #8

An engineer designed ductwork to a baghouse at an existing conveyor transfer house. The engineer was not retained to provide any construction phase services. The ductwork plans were drawn so that they did not interfere with existing piping, which was located approximately one foot from where the new ductwork was to be installed. The client’s maintenance crew cut through existing pipe into a live oxygen line and the rupture resulted in an explosion that killed two workers. Although the oxygen line was painted green—the industry standard to indicate danger—the workers had not cleaned it off to see what color it was. They also did not notice that the line was difficult to cut. Typical ductwork is thin and easily cut. The engineer had exposure for not including the oxygen pipe on the drawings even though it was not necessary for the work that was being completed. Although depositions were favorable to the engineer, the claim settled during mediation for $1 million. This was an excellent resolution since the lawsuits were filed in an unfavorable venue for trial, and the engineer was the only defendant since workers’ compensation was the only recourse against the employer of the deceased workers. The engineer’s expenses were $46,000.
Managing the risks of mechanical and electrical claims
These claims studies involving mechanical and electrical engineers illustrate how claims can be reduced or prevented by using simple risk management techniques such as the following:

• Establish and enforce procedures for documenting discussions, circumstances, and events as they occur. Have a systematic, objective documentation process in place to document all relevant activity.
• Projects are the most successful when there is a well-developed quality control plan in place. Firms should develop goals for the quality of the services they render, both overall and on a project-by-project basis. Qualified professionals should be put in charge of managing the firm’s efforts to meet the client’s goals and expectations.
• A written professional services agreement is a fundamental risk management tool. Use professional services agreements that fairly allocate risks to the party in the best position to manage those risks. Clearly define the scope of services to be provided and avoid creating unintentional and potentially uninsurable warranties and guarantees.
• “Vicarious liability” for the actions of subconsultants can increase your exposure for claims. Care should be taken to select subconsultants who are qualified and capable of providing their services and who carry their own professional liability insurance coverage.

If you are not retained to provide services through the construction phase, you still have the risk of liability associated with being the design professional of record, but you have no ability to mitigate that risk. You should try to convince the client to retain you and your firm for full services. If construction phase services are not envisioned in the original agreement or are severed from the contract, you should be protected against all claims except to the extent that the cost of those claims is the direct result of your negligence.