The Claims-Free Architect

Why “Wearing Too Many Hats” Could Destroy Your Practice

• Pro-Demnity Insurance Company • Season 4 • Episode 6

Share episode

Send us a text

In a condo venture, an architect juggles roles as promoter, developer, builder, and financier, while cracking columns threaten structural collapse and financial ruin. Can the architect wearing multiple hats be liable for this project’s failures?

Find out how “role overload” courts disaster, poor coordination sparks lawsuits, and clear contracts can provide a lifeline.

Connect with Pro-Demnity:

Thank you for listening.

The title of “Architect” has often been applied, in a non-professional sense, to those who organize and implement complex processes. This might include everything from international policy to computer networks, to haircuts. In this very broad sense, Larnell Saunders could be considered an entrepreneurial “architect” in air quotes. He preferred to think of himself as more of a Renaissance Man. But assuming too many roles can generate too many problems for far too many people, as this Architect discovers in this story, which we call “TOO MANY HATS.”

Saunders was first and foremost a professional Architect, and he was extremely proud of his architectural portfolio. But he also offered “full” services to an unusual degree: site selection, space needs assessments, design, development, construction management, marketing and investment advice. In his own self-description, he was a man who wore “many hats.”

His many interests, which constituted a virtual business empire, included, primarily, Larnell Development Ltd, a development and construction company; Saunders Financial Corp, a mortgage and loan operation; and L.S. Management, a real estate sales and management group that sold condominiums.

His architectural practice, Saunders & Munn, was operated almost entirely by Morty Munn, who was a talented designer but lacked business acumen. He had no shares in the web of corporations, and was virtually an employee of Saunders. This arrangement had existed for many years.

One of Saunders’s particularly promising projects had run into problems that quickly grew into a complex catastrophe that, no matter which hats he wore, he was incapable of resolving.

Larnell Development Ltd., through L.S. Management, was marketing a tax shelter scheme for prudent Canadians that involved purchasing condominium units as a rental investment. The investor could write off the depreciation and the tenant would cover all costs. The purchase of units was facilitated by a loan from Saunders Financial Corp., the interest on which was also deductible. L.S. Management would look after the transactional details and manage the property. 

Architectural services for the two-tower 400-unit scheme were provided, naturally, by Saunders & Munn, in the person of Morty Munn, who designed the project and oversaw the work of Bernie Forrest, a trained Architect and former OAA member, to whom the working drawings and site review had been farmed out.

By bundling everything under one giant umbrella, Saunders stood to make a bundle of money. It was a sweet deal in theory, and willing investors quickly snapped up over 100 of the units. In practice, however, there were a few worrying problems—structural, professional and financial.

The structural problems began to appear before the project was completed, and thankfully, before anyone had moved in. The columns supporting the landscaped garage roof had started to crack and deform. Without delay, the parking structure was closed, the slab was shored up and thickened, and new columns were inserted, to avoid its potential collapse. This constituted a major additional—but critically important—expense.

But this also led to another financial problem—or at least the leading edge of one. The near collapse of the garage roof had necessitated the removal of the elaborate landscaping and replacing it with a scaled-down version. Trees and large bushes in planters were replaced with shrubs and synthetic rocks substituted for the Canadian shield boulders that had been trucked in from northern Ontario. This exercise created an unappealing impression for any potential renters, and since tenants able to pay the necessarily high rents were already scarce, the “sweet deal” offered to condo buyers was beginning to turn sour.

It was also a very bad situation for Saunders. Owing several million dollars for the extensive repairs and unable to sell any more of the units, the Developer Larnell Development Ltd. defaulted on their loan from Cavendish Investment & Loan Corporation of Guernsey and declared bankruptcy.

The Lenders, now the project owners, initiated a review to see where they stood. This inspection turned up a host of other problems, including numerous defects in the exterior cladding, windows and balconies of the apartment towers. Cavendish, which had advanced a construction loan of $25 million, was now looking at repairs that would require at least another $4 million.

They had no choice but to file a claim against the various companies owned by Saunders in the hope that one or more of them had assets.

Cavendish’s claim was, on the face of it, straightforward. It was owed the construction loan of $25 million, and the developer was in default. The Investment Corporation now owned the building, but the “value” was not there. Someone needed to compensate them.

Since the Developer Larnell Development Ltd. was bankrupt, and both Saunders Financial Corp. and L.S. Management had promptly followed into receivership, the Lenders knew they would have to write off several million dollars. However, the Architects, Landscape Architect and Engineers, who were presumably insured, had committed many errors and should be required to pay for them. Statements of Claim were issued to Saunders & Munn Architects, Hadrian Waller Landscape Architects, Weldon Barre Engineering Consultants, and Castrum Engineering Inspection Services, whom Cavendish had hired to represent them onsite.

Much of the repair money being sought in damages had already been spent on the emergency structural repairs, under the direction of another Engineering firm that specialized in finding and correcting deficiencies.

Saunders told Pro-Demnity, his professional liability insurer, that he had bankrupted the various companies that he owned and controlled, to take them out of the picture. He had managed to acquit himself of his obligation to Cavendish Guernsey Bank by signing over all his promissory notes from the condo investors. It was now up to the Bank to pursue those investors for any balances owed. As a quid pro quo, the Bank had released Saunders from any further obligations, with his personal assets intact.

Saunders seemed quite pleased at having handled things so neatly. But the Claims Specialist could see very little for him to be proud of. His investors had been left holding the bag as owners of units that they couldn’t rent, couldn’t sell and therefore couldn’t really afford. In addition, his longtime partner and his trusting Consultants still faced potentially damaging lawsuits. Business is business, Saunders said, by way of explanation: You win some and you lose some.

Architecture, however, was different. He was justifiably proud of his architectural achievements throughout eastern Ontario, and he insisted that in this case, no errors had been committed by his firm.

Meanwhile, the Structural Engineer Barre, the Landscape Architect Waller and the Inspectors Castrum made similar claims of total innocence.

It looked like Pro-Demnity would have to do some serious head-scratching. The largest part of the claim was for the garage roof, which had threatened collapse, taking the surface landscaping with it. This had now been repaired, but the reasons for the failure were a matter of considerable contention. The Architect was blaming the Engineer for under-design and the Landscape Architect for overburdening the slab. The Engineer was blaming the Architect for allowing the landscape to overburden the slab, and the Landscape Architect was blaming the Architect and the Engineer for not providing him with proper information.

The balance of the claim related to the usual litany of building envelope defects: windows that leaked, balconies that sloped toward the building, drywall soffits that had collapsed, sliding doors that leaked and stuck, air barrier defects, dysfunctional flashings, etc. It was a checklist of virtually everything that can plague a building envelope.

We believed that these numerous defects, were probably construction and workmanship issues. However, there was a more basic problem that involved architectural services: The drawings were ambiguous, and due to a complete lack of coordination, there was no one to help interpret them onsite. Clearly, no one had looked very hard at anyone else’s work—everyone was on their own.

All the professionals were potentially to blame. In particular, the Architect had done a less-than-stellar job of co-ordination, but Saunders could not pass the blame on to site reviewer Barre. The Negligence Act would see to that: The Architect owed “a duty of care” to the Owners; that duty had been breached; and damages had been caused.

Then there was the problem of the “hats.” Most people get by with one hat—something that suits them and serves its purpose. Metaphorically, Saunders wore many hats, and rather than serving him well, they conflicted with one another.

Would a court accept that Saunders the Builder-Developer could be guilty of sloppy workmanship or that Saunders the marketing guru and investment advisor was offering bad advice, while Saunders the Architect was guilt-free? This was what we had to argue, and we knew that it would be challenging. We vividly recalled that another judge on another case had once warned us: “Don’t talk to me about hats!”

Discoveries began about a year after the exchange of the pleadings and stumbled on for two more years. The evidence produced during this time merely solidified the plaintiff’s position. Finally, the Guernsey bosses—who actually operated from that obscure tax haven off the coast of France—summoned up enough indignation to forge ahead and request a trial date. All defendants prepared for a long and messy trial.

But before that happened, it was, as usual, worth the effort to try settling the complex matter through mediation.

During the mediation session, Pro-Demnity and counsel would have to do their best without their clients. Larnell Saunders had moved away and was building a golf course in sunny Jamaica, while Morty Munn was in the hospital with a serious - and as it turned out, terminal - sickness. Forrest had recently been located somewhere in Brazil. His OAA membership had lapsed, and he had no desire or obligation to return to Canada. In any case, he had done his job: visiting the site, reporting to Larnell Development, and “signing off” with the Municipality.

But the absence of defendants was by no means a disadvantage to Pro-Demnity. It was the plaintiff, in fact, who was disadvantaged by not getting to confront the devious Saunders, and instead having to deal with us—the inscrutable insurers.

The plaintiff was represented by local legal counsel and an officer of the Bank who lived in Texas and had not been briefed about the case.

The mediator, Justice Peter Tacitus, was a recently retired senior judge, whose magisterial presence effected a respectful influence on the participants.

The plaintiff’s counsel opened with a devastatingly accurate account of the Guernsey Bank’s dealings with Saunders. Although they had settled with Saunders in his capacity as borrower, they had done this because they really had no option. Saunders had no assets other than the notes signed by the purchasers, whom the Bank was pursuing in another series of actions. They believed, however, that they had a valid claim against Saunders the Architect, that was unrelated to their “release” of Saunders wearing one or more of his other hats.

Counsel proceeded to run down the list of the physical damages and the reparation costs to-date, most of which were undeniably necessary.

In response, the Structural Engineer Barre’s insurance counsel explained that no one had ever provided his client with any information about the landscaping on the parking garage deck. If they had, he would certainly have called for a thicker slab and stronger columns. Furthermore, he had not been paid to supervise the work, so he knew nothing of the imminent collapse, or of the landscaping that caused it, until he received his Notice of Claim. How could he be held liable for anything?

The Landscape Architect Waller did not attend the mediation. A letter from his counsel had stated that his responsibilities included the design and installation of planting, rockwork, and 1.5 metres of topsoil to support them. He had no idea of, or liability for, anything underneath.

Castrum Engineering, the firm the Lender had hired to look after their interests onsite, stated that their function was only to report on progress, not deficiencies, and that is exactly what they had done. Their insurer, however, who was also present, looked a little dubious.

When it came time for Pro-Demnity counsel to speak, she presented a very different story, based on the ancient strategy that “The best defence is a good offence.”

First, she pointed to the document given to Saunders at the time of his “release.” The wording appeared to release him, personally, from all Manner of claims—and we knew that it was never intended to include a release from architectural negligence—but the vocabulary was hazy, and a closer reading might afford a defence. The plaintiff’s counsel found this idea “preposterous” and showed his disbelief (and possibly his deep concern) by shaking his head vigorously. 

Second, the Lenders knew full well that Saunders was offering a total package and wore many hats, which is why they had appointed Castrum to represent them during construction. Shouldn’t they be looking to Castrum with respect to construction shortcomings?

Pro-Demnity counsel proceeded to her next point. The Structural Engineers and the Inspection Company, also staffed by Engineers, had a professional duty to ensure that the structure was fit for the purpose intended. If the architectural drawings were vague, why didn’t the Engineers investigate? The lack of co-ordination of the work should have been another call to action. Why had the Engineers not stepped into the breach?

It was true, our counsel admitted, that Larnell Saunders had his shortcomings. However, the architectural drawings met the standards for Builder drawings, with details left to be decided by the Builder. These drawings had been approved by the Municipality and the Lender. In addition, the Ontario Building Code required engineering inspections, and Barre should have insisted on doing them.

As for the claim against the Architect, the Lender was clearly attempting to use it to recover some of the losses on a bad loan. Unfortunately, Saunders & Munn Architects, just like Saunders’s business empire, was insolvent, and had only $500,000 in coverage.

By late afternoon, arguments and counterarguments had been exhausted, and so, it appeared, had the patience of Justice Tacitus.He declared a recess until the following morning.

Phase two of the mediation started promptly at 8:00 am and dragged on until late evening. It involved the Judge speaking with each party separately, shuttling back and forth. It was a tedious procedure, but by the end of it, Justice Tacitus had persuaded each of the defendants that a contribution made now would be much less than the damages that might be awarded after protracted litigation.

The Engineers’ insurers were the worst hit, but the Inspectors and the Architects each contributed heavily as well, in order to reach a total of $2 million.

The Guernsey representative called their office overseas and, to his surprise, the Bank accepted the offer. It was evident that they just wanted to close the book on this neverending saga.

Architects, on the whole, being optimistic by nature, are not famously good financial managers. The combination of an Architect and a successful Developer in one person is even more rare—with certain well-known exceptions. Larnell Saunders was not one of those exceptions. He went into his ventures counting on everyone else to provide the necessary “due diligence.” He saw himself as a multi-tasker, but in fact, he piled the tasks onto everyone else. 

The inevitable collapse of his business empire may have allowed him to escape unscathed. We’re told that he is no longer an OAA member or a resident of Canada but is wheeling and dealing somewhere in the Lesser Antilles. But his hapless investors had to honour their notes for units they couldn’t afford, and the unfortunate Morty Munn didn’t live to see the story play out.

Pro-Demnity’s aspiration is always to help Architects learn from their errors, whenever possible. Saunders was asked by the Claims Specialist what he had learned from this experience. He had, after all, saved himself, while leaving everyone else—friends, colleagues, and trusting investors—in the lurch. For Saunders, there was no lesson - only a credo -- and it was simple -- Business is business.

In cases where Architects fail to learn from their mistakes, it is fervently hoped that other Architects can learn from them. To that end, we offer the following three lessons.

Lesson No. 1: The wearing of “many hats” can easily create complications. It’s tricky enough for an architect to be a planner, estimator, designer, detailer, technician, inspector, business operator, etc. without adding the roles of investor, developer, builder, investment adviser, etc. The headwear can easily become unsupportable.

Lesson No. 2: An Architect must take responsibility for confirming that the work of all the disciplines is coordinated, either by doing it themselves or seeing to it that someone else has assumed the role. If it is simply assumed that the Consultants will automatically keep in touch with one another, chaos may ensue.

Lesson No. 3—more of a basic ethical principle than a lesson: Architects as professionals, are expected to act with honesty, integrity and an appropriate degree of concern for those they serve. As an Architect, when tragedy strikes, and you are not entirely blameless, you should at least be sympathetic towards those who have been badly served as a result.