Errors/Omissions Insurance questions 1

[beej67]

I'm in the final stages of sparking up an independent consulting gig, (civil) for which I will occasionally have to stamp design documents.

I don't know much about E&O insurance, except that A) I need it, and B) the rates for it usually vary based on how much revenue you bill annually.


Questions:

1) are E&O insurance rates based on stamped revenue, or total revenue? I plan to do a lot of work that doesn't need a stamp on it.

2) who are some good E&O insurance providers to contact, when shopping around?


Thanks in advance.

 

[rbulsara]

1) E/O insurance is based on the total revenue, type of work you do and a lot of other information that you need to fill out on an application. It does not matter whether or not you stamp the drawings. You have the liability.

More importantly even for the same revenue every year, the premium will keep going up every year as the risk of all the work you do keeps get adding up. You have to have the continuous coverage of all the work you do for years to come (as long as the policy need to remain valid). If you have a break in coverage, you loose coverage of everything and a new policy will only cover the work beginning its effective date.

Remember your exposure to a claim still remains even if you retire. You may want to seek some professional advice from an attorney experienced in this field.

2) Find a professional insurance agent in your area through

http://www.plan.org

and talk to them.

Rafiq Bulsara

http://www.srengineersct.com

 

[zdas04]

One point above needs to be emphasised--if you change underwriters you have no protection for work done prior to the new policy effective date (the old guys wash their hands of you the second your policy lapses and the new guys won't touch it). You can get "bridge coverage" that keeps you covered for the earlier insured period, but it is really expensive and rarely written. When I first started I would get my next-year premium notice and start price shopping. Lucky for me there are few agents that handle this stuff and I never found a better price and have been with the same company from day one. That was just dumb luck.

Few Engineers handle rejection very well because mostly we don't get rejected for stuff. In this area you need to prepare yourself for rejection. I had 25 underwriters reject my business before I found one that would cover me. It may not be so bad in Civil as it was in Oil & Gas Facilities, but it probably won't be a cake walk either. The insurance through ASME and SPE both rejected my application because they didn't feel that they had adequate experience in my field (that's right, a policy through the Society of Petroleum Engineers doesn't feel they know enough about Oil & Gas).

Good luck with your new business.

David

 

[WHEngineer]

I was generally able to find e&o insurance through the same agent that provided my general liability and workman's comp insurance. I had policies through CNA and DPIC that were reasonable (for a geotech) that cost in the range of 3% of total revenues. For protection of earlier work, I was also able to purchase Prior Acts coverage, which added about 10% to the overall cost. One way to get the rates down is to increase your deductible. I typically ran a $5k deductible, although I know of a number of engineers that run $20k deductibles. If you are seriously worried about litigation, DPIC offered what they called DollarOne coverage, which covered all legal fees from the first day and the deductible only applied to any settlement. Once again, this was an additional charge. I often found that getting quotes from several different business agencies got me policies that were similar or less expensive than I could get from one of the professional societies.

 

[zdas04]

That's amazing. I've always heard that Geotech was the OB/GYN of Engineering and I'm paying 2% more than you (with a $5k deductible). I'm going to go have a beer.

That Prior Acts coverage is what my underwriter calls a "Bridge Policy", but my guy wanted about half the basic policy amount the first year (with the promise that it would go down each year till the Statute of Limitations was reached).

David

 

[Ron]

beej67...also, not only is your cost related to total revenue, it is gross revenue. That means if you subcontract work out to another engineer or drafting service, and then bill for their services through your company, you pay for that as well.

Good luck with the business.

Ron

 

[beej67]

Okay, so here's the rub.

A very large amount of the stuff I'm going to end up doing, if this goes the way I think it will go, is zero liability stuff. Stuff for which I basically cannot be sued. Education, expert testimony, blah blah. Stuff I wouldn't even bother carrying an E/O policy for.

But on the off chance I run into something where I would need to be covered, I'd like to not assume liability myself. It makes no sense to pay E&O on work that's 90% un-sue-able. I'd pay more in insurance than the work I'm doing to pay for the insurance, and be better off doing less work.

Can I set up two companies, and due insured work with one, and uninsured work with the other?

 

[photoengineer]

Bee67,

Yes, you can.

Or you can start a new company each year and dissolve it at the end of the year. It's a trick done by some engineers who work in industries that are virtually uninsurable. DERs are one example. They approve data on behalf of the FAA for modifications to commerical airplanes. Insurance is unaffordable for the kind of work they do.

Cedar Bluff Engineering

http://cedarbluffengineering.webs.com

 

[rbulsara]

You can do whatever you want just be prepared to face the consequences.


Rafiq Bulsara

http://www.srengineersct.com

 

[beej67]

"face the consequences" = ?

 

[rbulsara]

That is true for everyone, in whatever they do. No one does anything to invite problems, but the truth is we all have them.

Rafiq Bulsara

http://www.srengineersct.com

 

[beej67]

Okay..

So outside of general life advice, do you have any anecdotes or experience with what I'm talking about to share, Rafiq?

Photoengineer: Seems to me that if you shut a company down and started another to save yourself insurance costs, you'd still be on the hook for bridge coverage, as discussed above.

 

[rbulsara]

You had the advice from many, but it appears you want to what you want to do. Why ask?

And once you ask in a public forum, you have opened yourself to all kinds of responses, whether or not you like them or agree to.

If you want real and legal advice, which you ought to do, ask an attorney or two. Members here are a bunch of engineers and most of us consulting engineers carry E/O insurance as far as I can tell.

As far as suing goes, you do not have be wrong to get sued and proving innocece can also be very costly. Lawyers always goes to the bank laughing, whether you win or lose.

Also it does not matter what you think is sueable, as it is not up to you to decide who can sue you. Everyone who gets sued, always believed they could not be sued.






Rafiq Bulsara

http://www.srengineersct.com

 

[beej67]

I'm not here to argue, Mr. Bulsara, I'm here to ask legitimate, valid questions about how to structure a business so that I maintain insurance over activities that need to be insured without assuming costs that are ridiculous. I'm not asking the question to 4Chan, I'm asking it to what's supposed to be a body of respected professionals. If you don't want to participate in such a conversation, I'm sure there are other things you can do with your time.

No, I seriously doubt I'll be sued for spending a day teaching fluid mechanics for Continuing Ed credits, and even if I did, there's no way I'd pay for E/O for teaching.

No, I seriously doubt I'd be sued for providing legal testimony for another lawyer during a lawsuit, and even if I did, there's no way I'd pay for E/O to cover my expert testimony.

No, I have absolutely not "already decided" anything. I am in the middle of deciding whether to either:

A) get a 2nd mortgage on my house to cover the expenses of starting my own business, or
B) reduce my scope of services with the new business, or
C) start two new businesses to sufficiently differentiate between the scope of services provided, or
D) make arrangements with friends so that I outsource some services to them

I'm sorry if my predicament bothers you, sir, but it's a reasonably important decision in my life, and there's no reason for you to be so hostile. If you're going to continue on like this, I'd appreciate it if you'd take a few seconds to click the "turn off email notification" button in the bottom left corner, and save us both some time.

Thanks in advance.

 

[rbulsara]

Wish you all the best!




Rafiq Bulsara

http://www.srengineersct.com

 

[desnov74]

Go beej67!

 

[Ron]

beej67...It is awfully difficult to separate activities between engineering works and non-engineering works as a consulting engineer. In general, if you carry a certificate of authorization to practice engineering in a particular state, it is assumed that what you do on every project has to do with engineering. That's obviously arguable; however, that argument often gets played out AFTER the lawsuit is filed, not before. That means a claim is filed against your insurance and you will be defending something from which perhaps you can extricate yourself, but not without expense and lost time.

My suggestion is to get the insurance, deal with the fact that the premiums are based on gross fees, institute a quality assurance program (even if you practice alone), document all that you do, understand and CRITICALLY review your contracts (look for poor indemnification clauses, limitation of your liability, standard of care, ownership of documents, etc.), and assume that everything you produce will, at some point, be critically reviewed by an attorney and his engineering expert.

Good luck.

Ron

 

[beej67]

I get that, and would never attempt to divide a project that requires engineering into two pieces. That's a nightmare.

But if I get hired to teach, or do a peer review, or provide legal testimony, or manage LEED paperwork, then those are activities that aren't going to spill over into design work, so paying E/O insurance for doing those activities is dumb. And if those activities are the majority of my work, it may be more cost effective to simply narrow my scope of services and not bother with insurance at all. That's the break point I've got to get my head around moving forward.

 

[MacGyverS2000]

I can see someone taking a class taught by you, screwing up, and then pointing the finger back to your teachings. It may not be right, but it'll happen, and you could spend lots of hard-earned cash removing yourself from the fight.

Just trying to show that no type of job is invulnerable...

Dan - Owner

http://www.Hi-TecDesigns.com

 

[beej67]

Walking down the street isn't invulnerable to litigation in today's society. Does that mean we all need to carry sidewalk insurance? You have to draw the line somewhere, and that's what I'm trying to figure out. I'm reasonably sure none of my college professors carried E/O to teach. I'm reasonably sure none of the vendors doing freebie lunch and learns on their product carry E/O to teach. Have you guys ever heard of that? I've never heard of an expert witness getting sued for providing expert testimony for another lawsuit. Have you?

If the answer is "yes" then that's important info to get on the table!