Clearing the Fog
When negotiating contracts, environmental consultants need to understand the legal implications of the term standard of care
Environmental professionals, civil engineers, and most other professionals are legally obligated to meet the standard of care, i.e., to apply the care and skill ordinarily applied by local peers performing similar services at the same time. The "standard of care" does not require perfection because, even though practitioners demonstrate ordinary care and skill, errors and omissions can still occur. If a practitioner fails to demonstrate ordinary skill and care, however, and if that failure results in the client being damaged, the practitioner would be professionally negligent and liable for the damages' value.
Professional negligence is a tort, i.e., a civil wrong for which the courts will grant a remedy. As such, whether or not a contract says, "The consultant shall meet the standard of care," a failure to do so can result in a claim and, feasibly, a lawsuit.
Establishing the Definition of Standard of Care
Although the rules for establishing professional negligence are pretty straightforward, two key issues tend to obscure standard of care in fog. First, no one can know precisely what the standard of care is at the time it must be met. It can be identified only through research and, as a result, it can be identified only in retrospect (typically two to three years after the fact, as a consequence of litigation).
Second, the way in which standard of care is established makes outcomes uncertain. The ultimate decision-makers are the "triers of fact" i.e., judges or juries. Triers of fact are at liberty to totally ignore research findings, and they sometimes do, especially when they want to make a sympathetic injured party whole. When the only available deep pocket belongs to a design professional, and the only way of getting into that pocket is to say the design professional violated the standard of care, they will find a way to say the standard of care was not met.
Because of the uncertainty surrounding the definition of standard of care, and because even the best practitioners can make a mistake every now and then, most professionals obtain professional liability insurance (PLI). PLI is a risk transfer device that responds to claims of professional negligence, thereby helping to protect both victims and the practitioners. And because PLI creates pockets that tend to be far deeper than those resulting from a practitioner's own net worth, and because an insurer's deeper pockets tend to be far more accessible (triers of fact do not like to force practitioners to sell their homes and other assets to raise cash), most clients insist that their environmental consultants carry PLI. Unfortunately, on the advice of counsel, some clients go further and that can be a bad mistake.
Dealing with "Highest Standard of Care" Clauses
"Consultant shall perform at the highest standard of care," is what some contracts require, evidently under the assumption that it gives the client more leverage if something goes wrong. In other words, whether or not the failure to perform "Function X" violates the standard of care, it surely would violate the "highest standard."
But what is the highest standard? How is it defined? How is it identified? While none of that may be known, one thing does seem certain: The highest standard is not the "regular" standard of care. And, that being the case, a practitioner's performance obviously could meet the standard of care, but not meet the highest standard. At first blush, that may seem to be good for the client. A second blush reveals the opposite.
PLI creates a deep pocket only when the claim is negligence. If the practitioner met the standard of care, negligence would not have occurred. Failing to have met the highest standard likewise would not comprise negligence; it would be a breach of contract. But PLI does not cover breach of contract claims, meaning that PLI -- the deep pocket -- would not be available for a claim alleging failure to have met the highest standard. And because insurance companies hate paying out money, any number of them would be encouraged to claim that even the best-documented negligence "emanated not from our insured's failure to abide by the standard of care, but rather from its failure to meet the higher standard that was stipulated, a contractual liability exposure that our policy specifically excludes from coverage." Because such a response would make it extremely difficult for the client to collect (most of the practitioner's liquid assets would probably have to be spent on defense), the client would either have to drop the issue altogether or bankroll a lawsuit against the insurer in hopes of forcing it to provide coverage. For that reason, sophisticated clients overrule the attorneys or others who tell them that "the highest standard is the way to go."
There's another reason for clients' rejecting highest standard guidance, especially when the firm with which they are dealing has net assets large enough to make insurance-related arguments beside the point. In that case, when clients ask the firm to meet the highest standard, the firm agrees to do it, but lets its clients know that, as a consequence, the firm will have to apply the same type of quality assurance/quality control (QA/QC) it uses for nuclear power plant design, thus requiring a fee that is substantially more than what it otherwise would be. "In that case," almost all clients say, "meeting the standard of care is just fine."
This article originally appeared in the 11/01/2004 issue of Environmental Protection.