Project Overview: The Insured was retained to provide architectural services for a commercial office renovation. The original design contract was a fixed fee of $35,000, with payments scheduled in phases. What initially appeared to be a straightforward project took an unexpected turn when payment issues arose.
The Dispute Emerges
Scope Changes
As the project progressed, the client requested several design modifications, such as upgrading materials and expanding the layout. The Insured verbally informed the client that these changes would incur additional costs.
Payment Issues
The Insured completed significant portions of the design; however, when the Insured submitted its payment request, the client disputed the charges asserting that the changes were minor and the original fee should still apply. Additionally, the client asserted that the design was subpar and needed further revisions.
Rising Tensions
The Insured felt trapped – reluctant to continue without payment but wary of halting work, fearing a delay claim. The Insured addressed the client’s requests and then pressed for payment, but the client ignored the Insured’s subsequent payment requests.
Legal Action and Escalating Costs
Escalating Dispute
After much unproductive back-and-forth, and project completion reached, the Insured hired an attorney to pursue the overdue fees totaling $22,0001. Despite multiple demand letters, the client remained unresponsive, so the attorney filed a Mechanic’s Lien for the unpaid balance.
Client’s Response
In response, the client hired their own attorney and countersued alleging the Insured’s work was deficient and had caused project delays. This led to a professional liability insurance claim with the Insured’s carrier assigning legal representation to defend against the client’s counterclaim.
Legal Costs
Legal costs quickly accumulated. Legal fees accrued from the Insured’s attorney prosecuting the fee claim, the attorney appointed by the Insured’s insurance carrier defending against the client’s counterclaim, and the client also incurred fees for its attorney to contest the fee claim.
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