Are You Ready For a Major Project Disaster?

The authors are Arthur T. "Tom" Nielsen, P.E., of Erdman, Anthony, Associates, Inc., and Gunther O. Carrle, Esq., and Bruce D. Lombardo, Esq., of Powell, Trachtman, Logan, Carrie, Bowman & Lombardo, P.C. The following is an excerpt of their presentation to members of the Design Professionals Risk Council Group (DPRCG) during the annual convocation, November 96.

Most design firms today participate in loss prevention programs and make them available to their employees. Loss prevention programs provide a useful tool for reducing the number of claims and for minimizing the potential financial impact when a claim does arise. However, those programs typically do not provide information for how a firm and its employees should proceed when a claim is filed. Because most claims are relatively routine, they do not precipitate any media attention or public notoriety. As a result, design firms involved in such claims have ample time to contact their professional liability insurance carriers and their counsel and thereafter begin the process of investigating the loss.

The catastrophic loss, however, is far from routine. The consequences flowing from the lack of a proper plan for how the firm and its employees should proceed immediately after the occurrence of such a loss are more dramatic. Here are some guidelines to prepare a formal plan for handling a catastrophic loss in the unfortunate event that one occurs on a project in which your company is involved. It is not our intent to supplant the immediate involvement of your counsel and the forensic consultants retained to assist your firm. Rather, the guidelines discussed will serve to minimize the detrimental impact of the events immediately following the loss and facilitate the interaction between your firm and the team of experts retained to assist you in controlling your loss.

What Makes a Catastrophic Loss Unique?

By its very nature, every catastrophic loss has the potential for embroiling the design professional in complex litigation with significant financial exposure. In our experience, the catastrophic loss has unique characteristics that stand in marked contrast to the more routine losses that face most firms. Indeed, unlike a more routine loss, the aftermath of a catastrophic loss is characterized by:

• Uncontrolled flow of incomplete and inaccurate information
• Rapid and continuous change of the accident scene
• Presence of third party personnel and investigators
• Immediate need for the design professional to assist the owner in abating any continuing danger.

Each of these characteristics, if not properly controlled, has the potential for creating misinformation that will be the linchpin for involvement in long-term and costly litigation. Clearly, even if these characteristics are properly controlled, it may be impossible to avoid litigation. However, the failure to address these issues immediately after the occurrence of a catastrophic loss will almost certainly increase its cost, duration and adverse impact on the design firm.

Coordinator

Although the notion has become somewhat cliché, it is essential that a senior member of the firm be assigned as "in charge" when a catastrophic loss occurs. Ideally, this person is a senior member of the management of the firm whose assignment to this role is made and announced before a catastrophic loss occurs. The coordinator need not be involved with the project. Indeed, because of the additional responsibilities described below, the coordinator should not be on the project team so that he or she can maintain some independence and objectivity. The person selected should be independent, a good manager, a good listener and someone who is able to speak authoritatively on behalf of the firm.

The coordinator should have the overall responsibility for the firm in connection with the loss. These responsibilities include:

• Providing necessary notifications
• Controlling and coordinating the dissemination of information
• Controlling and coordinating the collection of information
• Controlling and coordinating the investigation of the loss
• Conducting regular internal briefings
• Working with counsel to protect confidential information.

All communications about the loss should take place through the coordinator. In particular, efforts by government agencies such as OSHA to interview the firm's personnel should be arranged through the coordinator.

Notification

Frequently, the chaos that surrounds a major loss results in a failure to notify other individuals or entities that need to know about the loss to help protect the firm's interests. Insurance carriers should be an initial point of notification. In the case of XL Design Professionals, immediate notification may activate the creation of a loss prevention file and permit the retention of counsel and other experts to assist in the investigation of the loss. Moreover, where the firm has an existing relationship with approved counsel, immediate contact with that attorney will provide helpful information and assistance on how to proceed with the specific issues and problems presented by the loss.

It is also critical that the firm's home office be notified. Where a loss generates significant third party and media interest, it is not unusual for efforts to be made by third parties to contact a design firm's home office. An early call from the local office to the home office alerting them of the problem can give them adequate time to prepare a response and brief home office personnel.

Control of Information

In our view, the primary objective of the design professional after being notified that a catastrophic loss has occurred, must be the control of information. A catastrophic loss promotes a tremendous demand for information. The requests for information are directed to anyone who is available. Lower level employees who have incomplete or inaccurate information, or who for other reasons should not be the firm's spokesperson, are frequently called upon to distribute this information.

The detrimental consequences are obvious. Where the information requested is of a type that is necessary to help mitigate the consequences of the failure, inadequate information can make the loss more severe, create a separate basis for liability and increase the firm's financial exposure. Even where the request for information is a simple and seemingly innocuous request for a description of the loss, an inaccurate or misleading answer can create liability issues that increase the likelihood the design professional will be brought into an action or certainly make it more difficult to favorably terminate the action.

An example of the type of simple comment that can lead to serious consequences occurred in our practice several years ago after an electrocution that resulted in several fatalities. After the scene was secured and the immediate danger abated, an owner's representative asked the design professional's field representative whether the project specifications addressed the issue of deenergizing power lines. The field representative (who coincidentally had only been assigned to that project for one day to replace an absent employee) opined that there was a specific provision dealing with power lines in the specifications. The specifications, in fact, were silent on the topic as they should have been given the design professional's limited scope of service. That conversation was recorded by the owner's representative and ultimately formed the basis for lengthy inquiry by the attorney retained by the estates of the accident victims. Ultimately, the court agreed that dismissal of the design professional was appropriate. However, the employee's careless comment had added several years and many thousands of dollars to the process of obtaining dismissal.

The guideline to be followed is simple. Immediately upon the occurrence of a catastrophic loss, the free flow of information and commentary must stop. The firm must appoint a single point of contact (Information Coordinator) who should be a senior member of the firm. That individual is responsible for obtaining all information necessary to respond to an inquiry and for making the response. Where a dialogue is required between project personnel and individuals outside of the firm, the firm's information coordinator should be present. All personnel should be advised in advance that upon the occurrence of a major loss, they should not provide any comment and direct all inquiries to the firm's coordinator, except where immediate communications are absolutely necessary to assist in abating any continuing danger.

A second consideration for dealing with damaging information is the need to control rumors inside the firm. While many firms attempt to shield their employees from information regarding the firm's involvement in a major loss, we recommend the opposite approach. Where there is a large loss, particularly one that would receive significant media attention, the employees should be advised of the basic facts surrounding the loss. To this end, the coordinator should conduct regular internal briefings with personnel so that speculation and rumor generation is kept to a minimum.

Direct contact between employees and third party investigators is perhaps the most difficult to control. All employees should be advised to direct all inquiries to the coordinator. When employees are asked, or subpoenaed, to provide statements, the firm should offer to provide counsel at the firm's expense to consult with the employee and accompany the employee to the meeting. Statements to nongovernmental investigators not representing the firm's interests should be delayed until some basic information about the loss has been obtained and the employees have been debriefed.

Information Gathering And Investigation

The period immediately following the loss is critical to the gathering of information both relating to abating any continuing danger and to mitigating the potential for a damaging claim. The claim scene at a catastrophic loss is rapidly changing. The opportunity to gather information can be rapidly lost. Because it is likely that the firm's project staff is involved with the technical issues that are presented by the loss, the coordinator should have primary responsibility to arrange for information to be gathered. As soon as possible after the immediate danger has been abated, the coordinator should write to the owner or the party in control of the scene and request that the scene be secured. While this may not prevent the removal of evidence, it will demonstrate a reasonable effort by the design professional to preserve evidence. If evidence is destroyed, the design professional will be able to argue that he or she has been prejudiced by its destruction.

The coordinator should dispatch an employee to photograph the scene as quickly as possible after the loss occurs. Thereafter, all employees who were present at the scene or who have first-hand information regarding the loss should be interviewed by counsel for the firm. If that process is delayed, the employees should be asked to immediately set forth their recollections regarding the incident in a memo addressed to counsel identified as "Attorney/Client Communications - Privileged." These materials should be segregated from the project file and maintained in a claim file with limited access.

While the retention of an expert consultant is frequently delayed until long after litigation has started, it is our view that in technically complex matters, particularly in the case of a major loss, the immediate retention of a forensic consultant is critical. A technically proficient consultant who specializes in the forensic aspects of his or her discipline can help guide the early stages of an investigation while transient information is still available. A forensic consultant not only brings a higher level of objectivity to the investigation and analysis, but if properly selected, the forensic expert will bring necessary experience in the investigation of the type of loss involved.

The coordinator should continue the collection of information by retrieving relevant files from storage, various locations in the office and employees, and assemble it all in a single secure location.

Included in the process of gathering information is a review of the project file to determine whether any special obligations existed to the client. In particular, it is critical to determine early in the process what the design professional's responsibilities are to the client in connection with:

• Assisting in investigations and claims analysis
• Producing documents related to the project for the client's use
• Any obligation with regard to indemnifying the client.

Each of these factors can have a direct impact on how the design firm proceeds with the investigation and conducts itself following the loss. Clearly, where the client's interests are inexorably tied to those of the design professional, the nature and scope of the investigation will change. In indemnification situations, the design professional may have an obligation to protect the owner's interests and the design professional's early investigative efforts must be directed to that end.

Even in the absence of an indemnification, the design professional's obligations toward the client in the event of a loss must be known and understood early. Where the design professional is obligated to produce documents or to provide investigative assistance, a refusal or delay in complying with those obligations can lead not only to an adversarial relationship but to a separate basis for a claim.

Training

Many of the efforts we've described cannot wait for the occurrence of a major loss to be implemented. The appointment of a coordinator and perhaps an assistant to act in his or her absence must be made before a loss occurs. More importantly, employees must be trained to act in accordance with the firm's disaster plan. Regular training sessions should be held to discuss with employees their roles. Planning for major losses should become an important part of each design firm's loss prevention program. All senior members of the firm should be familiar with the identity of the firm's professional liability carrier, its contact person for the firm and the attorney usually retained by the firm for professional liability matters.

Self-preservation is most likely the last item on the minds of the design professionals faced with a catastrophic loss, but it is one of the most important. Although assisting in the abatement of any immediate danger is critical and mitigation of losses and service to the client are vital, the failure to properly plan for the protection of the firm's interests in the period immediately following a loss can dramatically increase the financial and administrative burdens of the litigation that will almost certainly follow.