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.

 

[Ron]

beej67..

No, professors don't carry E&O insurance unless they do consulting on the side. There is an implicit indemnification of professors for what they teach, without regard to how bad it might be.

I taught for 5 years at the university level and while I had insurance, it was not a consideration in teaching.

I have seen experts get zapped. You can't hold yourself out as an expert and then do stupid things,thinking you're immune to liability. Just recently, a retired engineer provided an opinion in court on an engineering issue. He was wrong and did not reactivate his license to offer the opinion in public court....a violation of state law in the area in which he offered the opinion. The client is pursuing.

As for expert witness work, it isn't usually the opinion that gets you in trouble, but if you are negligent in obtaining the information upon which those opinions are based, you can be embarassed at the least and sued at worst. I do structural and construction forensics, so I know this arena reasonably well.

All in all, though, expert witness work is relatively low liability work. You're more likely to damage your reputation than your bank account.

Ron

 

[beej67]

Thanks Ron, that's good info.

 

[idecharlotte]

I don't carry insurance. Never have. The type of work I do involves jobs less than $5k for the private sector. My contracts are legally solid and if I make a mistake, which fortunately hasn't happened yet, I pay out of pocket for it.
We have been sued a couple times, but we've never paid a dime because the lawyers don't see the money in it if there is no insurance.
If you are doing small work, have a good contract, do good work, and tell clients you are self-insured.

http://www.idecharlotte.com

 

[beej67]

I spoke to a lawyer I highly respect who told me something similar, idecharlotte, that basically if you're uninsured then you're not worth suing for many of these guys.

Then again, the stakes are really high if they decide you *are* worth suing anyway.

Mostly I'd want insurance as a down payment / retainer for a lawyer, as much as anything else.

I thank you all for the input so far, and will continue to monitor the thread. Clearly next step is to talk to a lawyer in a little more detail, then talk to an insurance broker or two.

Do you guys have any more recommendations for insurance brokers? Does this website support private messages?

 

[WHEngineer]

idecharlotte - I once thought that way, until I was sued over a $2500 job. I had performed the work in accordance with the clients wishes and the client dictated all of the parameters of the work. My contract was solid and my lawyer told me the client had no case. I just did not tell him what he wanted to hear. It still cost me $60,000 in legal fees to prove myself right. This client not only sued my company, he sued me personally to get at any assets that he could. After that experience, I have never gone without E&O insurance. The cost of E&O may seem high, but percentage-wise, I've found it no higher than the charges the credit card companies charge to process credit transactions.

 

[brent578]

I am a 1-person structural engineering firm. I was recently sent an unsolicited email from the Dept. of Transportation (DOT) in my state, requesting that I bid on a small civil/structural job. I attended the mandatory pre-bid conference for the job, and the DOT representative stated that large firms had recently been charging 2-4 times the rates for engineering services that they had budgeted and that the large firms needed to consider this in their bids. However, the E&O coverage requirements made it cost-prohibitive for small firms like mine to pursue the work, even though the work scope was well suited to a small firm. I'm sure the reason I was solicited for a bid is because I am a small firm; the only reason the large firms were there, is due to the economy.

This is ridiculous. Is there some sort of a lobby pushing for affordable E&O Insurance for small firms? Our state has an insurance division and if other state departments want smaller firms and lower billing rates, they should concurrently be seeking lower insurance premiums and more competition. This is not an engineering problem; this is an insurance problem. Any thoughts on a lobbying effort?

 

[beej67]

My current (not startup - day job) company has seen the same sorts of things going on.

Here's the story in Land Development:

Economy crashes.

Many large engineering firms lay off 80% or more of their staff.

Included in that 80% are most of the people who actually know how to engineer, as opposed to the CEOs and client managers and (many) project managers who haven't actually engineered anything in a decade, who are largely retained.

This puts a glut of good engineering talent in the market, engineering talent that largely knows that they can do a job for a x2 or x1.5 multiplier out of their home and undercut the fat cats who fired them.

This good engineering talent bands into small firms, lowballs some bids, and monopolizes the first round of work post-crash, further screwing the older established firms.

Some of those small firms do good work, do well, and are now growing. Some of them screw things up, and then the clients begin to realize that they're uninsured, or poorly insured. Maybe something fails, maybe rumor of it gets spread around, and now the clients get worried.

The next phase of the story is the one we're in now. You have clients who want work done for the prices that the Kitchen Table firms can do, but they want established firms with 2 million or more in insurance coverage to do it. And they can often get it, because those established firms are so strapped for work they'd rather work at a loss than close shop. They're still buying work. Bidding out of fear.

I wouldn't mind seeing an entirely new E&O model arise, where each job is individually insured, instead of insuring the firm itself. That makes the most sense from a business standpoint. I suspect the insurance companies are not set up this way though, and I doubt they'd want to change, considering how much money they make now.

 

[strguy11]

brent578 -

Can you get a project specific rider for a larger project? That way, you can still keep your lower limit, but you could bill the higher coverage as an expense to the DOT, or build that premium into your fee. I have heard there are some carriers around that do this, but they are hard to come by.

Is that an option? You could maybe get a quote from a carrier to show the DOT you are serious, and tell them you will get the coverage once you are awarded the project.

 

[Richard63]

Reinforcing what a few others have stated here, I've heard the saying that E&O insurance is a "lightening rod for lawsuits" and that if you don't have it, and if the company does not have significant assets, which my company does not, the attorney's will not bother going after you. They have nothing to gain. However, if you do have it, they will go after you whether you are at fault or not since the insurance policy is the deep pocket that they are looking for when deciding who to go after. I've never had it and most of the people I know in the same line of work do not and say they will not.

I realize in some cases companies are forced to have it.



Richard

http://www.led-inc.com