There are many organizational risks associated with operating any type of business. Many of these operational risks can be mitigated using insurance policies. Others require the firm to create policies, processes and procedures around the various practice areas to increase the odds of favorable results. And the use of both insurance and risk control in tandem is the best way to safeguard your firm from potential loss.

Tort Law

Tort Law (also known as common law), only requires the design firm to act in a reasonable manner to prevent harm to others. While this concept of “reasonableness” in tort law does not have specific written rules to follow, it does have a standard. Design firms not meeting this standard can result in professional liability claims.


Contract Law

Contracts are the best resource in a design firm’s toolbox for managing risk. However, not all contracts are created equal. There are usually five forms of contracts a design firm will encounter: Oral Agreements, Letter Agreement, Purchase Order, Industry Standard Contracts (i.e. AIA, EJCDC, etc.) ,client or firm’s own contract. Contracts can also include Lease and Rental agreements. Contracts establish the scope of services, pricing, business relationship, communication system, jurisdiction, and rights and responsibilities of both parties involved.

Design firms are required to maintain a level of skill and care ordinarily demonstrated by members of their profession under similar circumstances and at the same time their services are performed, in the area that they practice. The law does not require perfection, just reasonable skill, and care. Failure to meet this “standard of care” is a necessary element for establishing negligence. Using this negligence standard, the following elements must exist for a design professional to be found liable: A duty owed by the professional to the claimant. A breach of that duty. Actual damage. Proof that the substandard performance was the actual (proximate) cause of the damage.

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