Vol. 11 No. 3		March 1992

The scenario plays itself out altogether too often. The project was a major one. Now it is complete, and the owner and the contractor are engaged in fierce combat over extras and delays. Try as you might, you can find little fault with the performance of the design team. There appears to be only the remotest possibility of negligence. Yet you find yourself embroiled in a bitter, complex dispute over a cumulative impact claim alleging damages in the millions.

The mathematics are appalling. Your (not insubstantial) deductible is gone, your limits of liability are being eroded by rapidly escalating costs of defense, and your attorney's estimate to see the case through trial is in excess of $250,000. The only serious question in anyone's mind is, "How long is it going to take to get enough information on the table to effect a settlement and be done with it?" Whether you are going to pay is not an issue. How much may depend upon just how costly the process is likely to be and how intimidating it can be made to seem.

Mediation might help, and it may be worth a try if the parties are willing to enter into negotiations in good faith. If not, your biggest problem is that you have no leverage. The cost to the owner of holding you hostage to the process is relatively low--almost certainly less than the potential gain to be realized when you are finally permitted to buy your way out. In the meantime, you have no choice but to call all bets and continue to play a very costly hand.

This is not a pretty picture, but what's done is done. Can you strengthen your hand for the future? Perhaps. Including prevailing party language in your agreements can give you a powerful weapon against intimidation by the darkly suited. Subject to the advice of your attorney, you might consider adopting a standard contractual provision drafted along the following lines:

In the event any legal proceeding should be commenced between the parties to this Agreement, whether in contract or in tort, including, but not limited to enforcement of the fee provisions hereof, the prevailing party shall be entitled, in addition to such other relief as may be granted, to a reasonable sum for attorneys' fees and costs, which sum shall be determined by the court or forum in such proceeding or, in the absence of such determination, in a separate action brought for that purpose.

But...isn't this a double-edged sword? Yes, it is, and this fact makes it easy to convince owners and their attorneys that prevailing party language is both reasonable and fair. If you engage in a dispute with the owner and lose, you are likely to be obligated to pay the legal costs he or she incurs in the process. It is not a welcome prospect, but let's think this one through. If you initiate the action, it will most likely be in an attempt to collect unpaid professional fees. The typical response is a claim for negligence. Enter intimidation, for even if you win, you lose. The owner's hope is that the prospective cost of defending against the negligence claim will be sufficiently high to force you either to abandon your fee collection effort or to concede a significant portion of your demand. Where your case is strong, prevailing party language deflects intimidation. If your case is weak, it should give you pause before you bring the action in the first place. This is not necessarily a bad thing.

If the owner initiates the action, it is likely to be based on allegations that you breached your contract or were negligent or both. If your agreement is reasonable, a breach on your part is unlikely, and the action will focus, instead, on the issue of negligence. If you are found to be negligent, you may well be liable for attorneys' fees and costs, as well. For the most part, however, the indemnity protection sophisticated owners nearly always demand of you will have created that obligation anyway. What prevailing party language does, more than anything else, is guide some of that protection back in your direction. And, where the case against you is weak, it should give the owner pause before forcing you into an expensive, frustrating, and time-consuming defense. This is not a bad thing, either.

Keep in mind that professional negligence is difficult to prove. In something on the order of nine times out of ten, plaintiffs fail to do so at trial (or in an arbitration proceeding which runs its full course). But very few claims ever get that far. Most are settled somewhere along the line because the parties fear both the ultimate cost of the process and the uncertainly of its outcome.

It is here that prevailing party language can afford an enormous advantage. Your message to the owner is this: "Seek to run us into the ground by pursuing your claim to the bitter end if you wish, but if you fail, and the likelihood that you will is high, the costs you impose on us will be laid neatly back on you. On the other hand, if you prefer to discuss settlement, we would be pleased to do so against the backdrop of costs you are likely to incur if we do not come to some mutually acceptable understanding." This is leverage, and it can be of great value to have it working in your favor. True, it can also work against you, but the odds are far better that it will not.

There is a risk, however, and it is one you need to keep in mind. Under your professional liability insurance, you can generally insure a contractual understanding to compensate your client for attorneys' fees and costs attributable to your negligence, but only to the extent of your proportionate responsibility for the owner's loss. Under most policies, you cannot insure a contractual obligation to pay costs which exceed those incurred as a result of your negligence.

The risk is this: Relying on the prevailing party language of your agreement, a court (or an arbitration panel) could find you responsible for 100% of the owner's defense costs even though you were less than 100% liable for the owner's loss. The difference, depending upon the circumstances surrounding the claim, the jurisdiction in which the case is heard, and the specific language of your insurance policy, may be uninsured. You could also be found to be in breach of contract and obligated to pay the owner's attorneys' fees and costs. This, too, in many cases, would be uninsured.

Given the odds, these seem to be relatively modest risks. A growing number of architects and engineers have chosen to ignore them. The negotiating leverage prevailing party language can afford in most situations is judged to be of far greater value. It can result in the recovery of substantial sums where an owner is foolish enough to drag you to trial for no better reason than the sheer joy of it, and an occasional owner has been known to do that. Under more likely circumstances, it can deflect claims in some cases and precipitate earlier and less costly settlements in others. This would be a most welcome turn of events.