Duty to Defend – ACEC Texas Bill
HB 2116 passed both chambers and will become effective as law on September 1, 2021. This bill extends the prohibition on uninsurable duty to defend clauses to all contracts for engineering and architectural services and would require the ordinary, reasonable standard of care in all contracts.
After numerous discussions and negotiations between the owners, contractors, architects, and engineers, Texas legislature has limited the duty to defend clauses in contracts for architectural or engineering services. More specifically, contractors, architects, and engineers encouraged the Texas legislature to limit the liability and indemnification provisions in certain construction contracts for engineering or architectural services related to an improvement to real property. More specifically, they argued that including a duty to defend clause in a contract for engineering and architectural services is unfair because such contract provision would require an engineer or architect to pay the owner’s legal bills before any determination of liability, or even after a finding of no liability. Furthermore, they urged the legislature to agree that such duty to defend provisions in a contract for professional services with an engineer or architect are uninsurable. As design professionals, engineers and architects carry professional liability insurance, which protects against any action brought against the engineer or architect arising out of their services and work. The commercial general liability insurance policy carried by most engineers and architects does not protect against an action that arises out of their respective services. Therefore, a professional liability insurance policy does not cover against the costs of defense for someone other than the engineer or architect, and consequently if an engineer or architect signs such a contract, they would be paying out of pocket.
As a result, the HB 2116 by Rep. Matt Krause & Sen. Beverly Powell now voids a provision in a contract for engineering or architectural services to the extent that it requires a licensed engineer or architect to defend another party against a claim arising from the owner’s negligence or breach of contract. It further limits the right of reimbursement of the owner’s reasonable attorney’s fees in proportion to the engineer or architect’s liability and disallows it in a contract for design-build services in which an owner contracts with a single entity to provide both design and construction services.
The bill further eliminates the owner’s right to allocate a construction risk to the party in the position to best defend the plans and specifications provided to the owners. The bill allows the owner to be added as an additional insured on any of the engineer or architect’s insurance coverage to the extent that additional insureds are allowed under the policy. The compromise further exempts contracts in which the owner contracts with an entity to provide both design and construction services, as well as a covenant to defend a party, including a third party, against a claim for negligent hiring of the architect or engineer. Finally, the bill adds §130.0021, CPRC, prohibiting a contract for engineering or architectural services from requiring an engineer or architect to perform professional services to a level of professional skill and care beyond that which would be provided by an ordinarily prudent engineer or architect with the same professional license under the same or similar circumstances. It should be noted that Sections 130.002(d) and 130.0021, Civil Practice and Remedies Code, as added by this Act, apply only to a contract entered into on or after the effective date of this Act.
HB 2116 becomes an Act and takes effect September 1, 2021.