Facts: Insured provided architectural services, including construction administration with review of payment applications to a church assembly group. Contractor abandoned the project after receiving $1.1 million in funds for material. Contactor could not be located at the time the lawsuit was filed, had no insurance and was bankrupt. Alleged damages in excess of $2 million.
Claim against the insured: 1) architect failed to properly advise client regarding common practices in the construction industry; 2) architect failed to exercise reasonable care in reviewing/approving payments requests; 3) architect made misrepresentations concerning the percentage of work completed at the project; 4) architect failed to properly supervise the contractor and his requests for materials; and 5) architect failed to properly advise client regarding contractor payment requests and costs of materials.
Technical error: Architect approved a line item on a payment application that did not match the invoiced amount. The payment application requested approval for $215K, but the companion documents showed $1.1M had already been paid to the contractor.
Defenses raised: Contractor didn’t follow correct protocol and contacted the church directly requesting payment on an expedited basis over the weekend. Architect wasn’t notified of this directly (although copied on an email communication).
Liability concerns: Our experts opined that a jury might agree with the plaintiff’s argument that the Insured’s approval of the payment application and the next 4 should have raised a red flag that the amount paid to the contractor did not correspond to the progress of construction and that the material that was paid for wasn’t out on the site. In order for the insured to certify the amount requested, he should have reviewed the companion documents. It took him several months to catch the mistake and by that time the contractor had already fled the project.
Policy Limit: $1 million per claim, $15,000 deductible.

Resolution: Matter settled for $650,000. Insured’s defense costs $250,000.