According to a recent analysis from Realtor.com, the gap between single-family home constructions and household formations grew to 6.5 million homes between 2012 and 2022. U.S. Census Bureau data suggests that single family authorizations for building permits, which experienced a significant decline in 2022 following the rise in interest rates, increased 22% between January and March 2023. That said, even if this upward trajectory continues, experts predict that it will take nearly a decade to bring housing availability in line with demand, even with accelerated construction efforts. Given the pressing conditions of the housing market, design professionals should be keenly aware of the unique risks associated with single-family residential projects. While design professionals may view these projects as smaller, simpler and/or low-risk, Travelers claims data suggest that, historically, single-family home projects have been a significant generator of claims for a multitude of reasons, including lack of a signed contract, unclear scope of services, unclear description of the project, insufficient observation and documentation and lack of adhering to applicable codes and standard of care.
Background An architect was retained by homeowners in connection with the renovation of their home’s carport and deck areas. The architect and the homeowners were good friends and, given the size of the project and the nature of their relationship, the architect did not obtain a contract in connection with the work. The architect’s plans for the deck area called for a grill to be installed on a raised countertop which housed trash and recycling bins in a wood-framed enclosure positioned directly underneath.
What Happened Some time after the renovation was completed, a fire erupted in the deck area, causing damage to the deck and interior of the home. The homeowners filed a homeowner’s insurance claim to address the damage. In an effort to recoup the funds paid to repair the deck and interior of the home, the homeowners’ insurance carrier filed a subrogation lawsuit against the architect alleging that the grill’s proximity to the wood framed enclosure caused the fire, and that the architect was negligent in their design of the grill and wood-framed enclosure. The homeowners’ insurer sought over $800,000 in damages from the architect. Further investigation revealed that while the architect’s original plans specified a portable grill, subsequent discussions with the homeowners led to the installation of a permanent grill with a gas line despite the architect’s initial concerns regarding fire safety. Although the permanent grill was larger than the portable grill that was originally contemplated, the architect did not draft revised plans which accounted for the substitution. It was also discovered that while the architect’s permit plans included general notes concerning the enclosure which referred the contractor to the grill manufacturer’s installation instructions, the contractor failed to comply with the manufacturer’s installation specifications which would have required the use of “noncombustible” materials to construct the enclosure. The contractor took the position that the enclosure was built according to the architect’s specifications, and that the architect’s plans, which were never updated to account for the change from portable grill to permanent grill, did not leave enough space to adhere to the clearances required by the manual. The contractor ultimately asserted cross-claims against the architect.
CLAIM STUDY: Single-Family Residential JULY 2023 travelers.com The Travelers Indemnity Company and its property casualty affiliates. One Tower Square, Hartford, CT 06183 This material is for informational purposes only. All statements herein are subject to the provisions, exclusions and conditions of the applicable policy. For an actual description of all coverages, terms and conditions, refer to the insurance policy. Coverages are subject to individual insureds meeting our underwriting qualifications and to state availability. The views expressed in these materials are those of the author and do not necessarily reflect the views of The Travelers Companies, Inc. or any of its subsidiary insurance companies (“Travelers”). This material is for general informational purposes only and is not legal advice. It is not designed to be comprehensive and it may not apply to your particular facts and circumstances. Consult as needed with your own attorney or other professional adviser. This material does not amend, or otherwise affect, the provisions of any insurance policy issued by Travelers. It is not a representation that coverage does or does not exist for any particular claim or loss under any such policy. Coverage depends on the facts and circumstances involved in the claim or loss, all applicable polic`y provisions, and any applicable law. Availability of coverage referenced in this document can depend on underwriting qualifications and state regulations. Claims scenarios are based on actual claims, composites of actual claims, or hypothetical situations. Resolution amounts are approximations of both actual and anticipated losses and defense costs. Facts may have been changed to protect confidentiality. © 2023 The Travelers Indemnity Company. All rights reserved. Travelers and the Travelers Umbrella logo are registered trademarks of The Travelers Indemnity Company in the U.S. and other countries. The Result Litigation lasted for nearly two years, including a second lawsuit filed by the homeowners’ neighbors who sought recovery for minor smoke damage to their property as well. Ultimately, the parties settled the matter prior to trial for $600,000, with the architect contributing a little over $200,000. Roughly $75,000 was spent in defense costs and expert fees and expenses. Regrettably, the litigation also took a toll on the architect’s relationship with the homeowners.
Risk Management Tips
Contracts: Always have a contract in place, even for smaller projects or projects on behalf of family, friends and/or long-term clients. Ensure that the contract clearly establishes what you will be responsible for, and what you won’t be responsible for (such as a contractor’s means and methods or site safety).
Communication: Always make your client aware if a suggestion or desired plan modification may pose safety concerns or other risks that the client may not fully appreciate. Be sure that that you are able to accommodate your client’s requests while still adhering to the appropriate standard of care.
Documentation: Be sure to keep detailed records of communications between all parties involved in the project. Appropriately document any design changes and review and update your plans to address any peripheral details and elements that will be impacted by such changes. Conclusion As America continues to address the ongoing housing shortage over the coming years, single-family residential projects will remain an important component of the larger solution. While builders work to develop new construction in the needed areas, existing homeowners may choose to undertake significant renovations in lieu of “trading up.” Travelers claims data for design professionals between 2014 and 2019 show a high claim frequency for single-family residential projects. This may be fueled by inexperienced homeowners who are unfamiliar with the construction industry, as well as homeowners who pursue value engineering and sacrifice quality in an effort to control costs in the face of rising interest rates and persistent inflation. Furthermore, increased construction costs may lead homeowners’ insurers to more vigorously pursue design professionals to recoup costs associated with alleged professional negligence as a means to combat increases in claim severity. No matter the project size or circumstance, design professionals should take proper precautions when working on single-family residential projects. For more examples of claims involving single-family residential projects, please visit our library of Claim Studies on Travelers new home for risk management.
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