Design firms are aware that they should treat all client information that is not generally known as confidential. However, the design firm may unintentionally breach a broadly worded confidentiality obligation while using that information in the normal course of practice or in its defense of a claim.
It is reasonable that a client and design firm address the following concerns when negotiating a confidentiality provision:
- What are the restrictions on the use of the information during the design process and in submissions to governmental entities?
- What happens if there is a conflict between the proposed contractual obligations and the obligations of the design firm under licensing laws?
- Does the provision mean that the client intends the design firm to transfer rights to its instruments of service to the client because they are confidential information for the specific project?
- If a third party brings a claim, can the design firm use the confidential information in its defense?
- Is there an indemnification obligation for damages and costs to the client caused by any release of the information?
- If the level of confidentiality requires the design firm to change its normal practice procedures, office, computer security, or use of specific employees, will the design firm receive compensation for the extra cost and complexity?
A client may have a rational basis for demanding an extreme level of confidentiality, but should be aware that a broadly worded provision might conflict with the design firm’s duty to the public, limit its ability to provide services or defend itself against a future claim, and transfer its technical expertise and design details. Under common law, a design firm owes the client a duty of trust and confidence in using client-provided information when performing services. The goal of licensing design professionals through state registration laws is to protect public health and safety. Thus, there always exists a possible inconsistency between protecting the client’s information from disclosure and meeting the mandates of registration laws and the ethics of the design professions. In most cases, when a client wants information to remain confidential, existing practice management techniques are all that is needed to meet the common law obligation, but a contract may require special awareness through a stricter contractual obligation.
Both the design firm and the client need to recognize, and possibly negotiate into the contract, a limitation on any confidentiality provision to avoid preventing the design firm from meeting its duty to furnish notices required by law or from complying with governmental mandates to provide information. Further, if the client insists on a strict confidentiality clause to protect trade secrets, the contract should also address the design firm’s right to use such information in the defense of any suit brought against it.
Clients insisting on a confidentiality provision usually want an indemnification provision for any damages to them caused by breach of the provision. Unlike some professional liability insurance policies, the Victor and CNA policy includes coverage for the unintentional breach of a confidentiality provision. The policy would pay on the policyholder’s behalf for an indemnification obligation to the extent that the policyholder directly caused the client’s damages through the design firm’s failure to meet professional responsibilities to keep the client’s information confidential. A more stringent contractual obligation, including any stated damages that exceed actual harm, might not fall within the coverage provided by professional liability insurance.