Design vs. Engineering - Exempt from Liability?

[TXMEEN]

I am looking into performing design work on the side and have run into the obstacle of paying for E&O insurance. I have received a few quotes for $6000-$8000 per year. Just starting out, assisting individuals with their product designs, I doubt people will be able to pay $100+/hr for engineering work meaning I would likely pay $8000 to make $3000.

I have come across a number of freelance sites and have seen individuals who offer design services. Some sites show the individuals earnings and they are making less than the price for insurance.

Is there a way around the E&O insurance? I don’t know how these individuals are offering design services if they are not engineers. And if they are engineers, how can they afford to pay the high insurance cost with smaller jobs?

Are you exempt from liability somehow if you offer “design” services and not “engineering” services? When looking at the rules from the engineering board in my state, it sounds like design and engineering are the same and a stamp is required on design and/or engineering work.

Thanks

 

[MacGyverS2000]

What site owner, in their right mind, would show the rest of the world what their earnings are?

Dan - Owner

http://www.Hi-TecDesigns.com

 

[TheTick]

They could make you an employee.

 

[Ron]

It is not practical to try and separate design and engineering, particularly if you are a licensed engineer.

Many small firms and one-person firms elect to go without insurance. It is risky, but also makes you less of a target for spurious claims. If you screw up though, it would be nice to have it.

Consider going with a slightly higher deductible and lower your insurance coverage, say a $10k deductible and $250k or $500k insurance. Remember, insurance premiums are based on gross revenue, so don't be put in the position by your client to sub things out and run them through your invoices.

 

[msquared48]

E & O Insurance will be required by the client for all Hospitals and Schools, some Banks, and most government work. Other than those markets, and outside of the specific requirements of the potential client, the choice is yours.

Mike McCann
MMC Engineering
Motto: KISS
Motivation: Don't ask

 

[zdas04]

Mike,
It is a lot broader than that. Every single one of the 25 MSA contracts (in Oil & Gas) I have in place require Professional Liability insurance. Mostly they require that I have millions in coverage. If contracts didn't require the insurance, I wouldn't have it.

Ron,
While the premium is based on gross billing, it is usually on a sliding scale. If you make $10k/year you'll pay so much per thousand. At $50k the per thousand rate would drops some (maybe 25%) so you'll only pay 4 times as much for 5 times as much gross revenue. By the time you get to $400k the per thosand rate drops dramatically, but the total bill is stagering (in my best year so far, I had to pay $22k).

David

 

[msquared48]

David:

Thanks for the info.

I have no experience in Oil and Gas, except at the dinner table.

Mike McCann
MMC Engineering
Motto: KISS
Motivation: Don't ask

 

[Ron]

David...same experience here. My best year in the last 5 went to almost $25k. Back down quite a bit now, but I changed carriers also.

Mike...I have more experience with gas than oil.

 

[TXMEEN]

"What site owner, in their right mind, would show the rest of the world what their earnings are?"

Some of the freelance sites display what the individual has made. I am guessing it is on projects landed directly through that website.

Can the liability be placed on the individual you design for? Can you sign and stamp a drawing but have some sort of disclaimer indicating the individual persuing the designs takes on all liability?

Are there ways to separate your business from your personal finances? If you are just starting up and have $1000 in a business fund, can you make it so that it you are sued, they can only attack the business and not you personally. If you loose everything, it wont be much of a hit. Now later on down the line, if you become successfull and you have $30,000 in the business account, you can afford the insurance and it would be worth the cost since you have more to loose?

Can you separate business and personal finances, protecting your home, retirement savings, etc?

 

[zdas04]

A company cannot stamp anything. A PE does that. The reason I didn't incorporate is that nothing will shield a PE from liability.

David