Idemnification clause in contract 6

[cedarbluffranch]

So here goes more posting about liability of being a professional engineer...

Can I include an idemnification clause in my contract, and if so, will it protect me against lawsuits from the client and general public.

For example, I do some engineering work for John Swearingen. I put a clause in the contract that says John Swearingen idemnifies me from any lawsuit that may arise from my work. (By idemnification, I mean that John Swearingen agrees to protect me in case of lawsuit). Judy Mertz, unrelated to John Swearingen, suffers an injury and blames my design on the injury.

Would this idemnification clause protect me from Judy's claim?

I appreciate yoru comments.

 

[GregLocock]

I wonder why a client would pay an engineer for a design if said engineer refused to take responsibility for it?



Cheers

Greg Locock

SIGlease see FAQ731-376 for tips on how to make the best use of Eng-Tips.

 

[TheTick]

Life begins with risk and often ends with a badly miscalculated risk. In between, more risk.

 

[rbulsara]

Take some lessons in Professinal Liability Insurance, guys. It's too big a subject to cover here.

You can google for PLAN (Professonal liabiltiy agency network. i think). Find an agent in your state and they can guide you. (Of course it costs money!).

If you work at a professional engineering place, there will be someone (all insured PEs) with bunch of books on the subject, provided in classes held by PLI carriers.

It does not stop there, you need to have a lawyer/attorney on your side to interprete much of it.


Greg:

There is a difference between taking responsibilty and protecting (as best as you can) against liabilities.

 

[cedarbluffranch]

For the particular kind of work that I am looking at doing, the customers are only hiring the engineer because the city requires them to, not because they are looking to the engineer to take on responsibility.

The customer has a choice to hire an fully insured (and fully liable) engineering firm to do the work professional for $1200 to $2000 or to hire an individual engineer for $250 - $500.

In this case, many clients would be interested in signing any sort of idemnification clause to get the price to the level they are interested in paying.

I am not interested in personal liability insurance.

 

[cedarbluffranch]

To give some more details on exactly why I am not interested in insurance:

The particular products I am looking at using my PE stamp on will be used anywhere from 5 to 30 years. (My PE stamp covers the installation of these products, not the products themselves.) From what I understand, personal liability insurance covers me only as long as I continue paying for it. I'm not interested in paying for a lifetime of personal liability insurance because I use my stamp one or two times a year. At $500 a pop, I might get $1500 or $3000 a year in revenue and believe that PLI will cost a huge chunk of this money. Plus, I may not do any work for a few years and don't wish to pay for PLI just because I used my PE stamp to create an installation drawing.

How much are you paying for PLI anyway? If it is cheap (say $50 or $150 a year) I might be interested.

 

[Ron]

cedarbluffranch...Indemnification clauses are fine if you can get one written on your terms. Some states do not allow indemnification clauses or restrict them in some instances. When you are working for a public agency, their indemnification clause will be written for them, not for you. This is true of most contracts. The client seeks your indemnification, not the other way around.

There are three basic forms of indemnification; broad form, intermediate form, and narrow form. For your purposes, shoot for a narrow form of indemnification to protect you as much as possible.

Keep in mind that you cannot disclaim nor receive indemnification for YOUR negligence in most cases.

I have uploaded a booklet I wrote on Contract Review for engineers. Hopefully you'll find it to be helpful.

 

[cedarbluffranch]

Thanks Ron. I appreciate your attaching the booklet and providing the information that you provided.

 

[zdas04]

IT AINT'T CHEEP. My last bill was over $18k and it isn't getting any less expensive. You raise a good point, all of the P&L insurance I've seen covers you while you are paying for it (if you change firms every year to get the best price, then you end up only having insurance for the current year, the company doesn't have any liability for past clients even if the event happened while you were in good standing with them).

Indeminfication is possible--you never get what you deserve, you get what you negotiate. My guess is that if you get a client to hold you harmless and indemnify you against claims, the price will be a substantially lower fee. This may be the best answer for you, but it sure wouldn't work for my firm.

David

 

[Ron]

cedarbluffranch....professional liability coverage cost depends on fees. Your insurance cost will be based on your fee level (gross fees, not net fees). For a single practitioner, expect to pay at least $5000 per year for $1 million in coverage. If you want less coverage, you might get as low as a couple of thousand a year.

If you elect not to get coverage, be sure you protect your assets otherwise. Even if you incorporate, you can still be held personally liable in some states (mine is one of those!).

Remember, just because you do a good job and do everything right, you can still be sued. It costs a lot of money to defend a suit even if you are right and even if you win the suit. You may or may not recover attorney's fees if you win, but you'll likely have to put out the money ahead of time in either case.

 

[msquared48]

You can try, but the court would not buy it.

Mike McCann
MMC Engineering

 

[cedarbluffranch]

Why won't the courts buy it?

 

[cedarbluffranch]

Basically, I'd be putting in a clause in the contract that says my client would idemnify me against any claims brought against me due to the work that I did for the client.

 

[JLSeagull]

Are you an engineer or a lawyer?

I just issued an inquiry for equipment from a major manufacturer. The is the only acceptable maker for that type product. However, our corporation and that corporation cannot resolve terms and conditions. As a second bidder I included a small organization who can buy from the big guy and sell to us. Being small he is not worried about being sued. He marks up the product. We can buy from the small representative instead of the big guy thus avoiding the legal issues that cost lots.

As the little guy, I would not want to bring on the big guy problems and write myself out of opportunities.

 

[rbulsara]

Cedar and some others:

I would think you guys also believe that you do not need auto insurance or home insurance (probably you do not have one), because you are such good drivers and your house is at no risk of fire or theft, right??

 

[cedarbluffranch]

The law requires me to carry auto insurance, so I do. Regardless, auto insurance is a necessary evil because the loss potential is high.

My mortgage company requires me to carry insurance on my home. I carry it since I would lose my home otherwise.

When I rented, I didn't purchase rental insurance because I thought it was wasteful. I don't purchase most other forms of insurance (extended warranty policies, travel insurance) because they are unnecessary in my opinion. I don't have life insurance nor do I purchase other forms of insurance offered through my company.

I'm not a believer in insurance since insurance underwriting is a for-profit enterprise.

The specific response in this case is I cannot make a business case for doing any work if I have to purchase insurance for every year the item I create engineering drawings is being used. In my case, the items will be in use for 5 - 30 years, and no one can charge enough to cover 30 years insurance from a single years worth of jobs.

(Nor can you for that matter. I've read on here many people aren't carrying insurance this year because they aren't doing work. But that means they are fully exposed to any past work they are doing.)

 

[JLSeagull]

Perhaps you need both legal and insurance advice if you have liability concerns. If working 1099, you could consider buying errors and omissions insurance. If incorporated, you might consider directors and officers liability coverage as an individual and as a company.

The original question pertainied to an indemnification or hold harmless clause in a consulting contract. Use lawyers for legal advise. My observation is that complex legal contracts could reduce your business opportunities. Keep it simple. As posted in other threads, someone can sue you regardless of the contractual terms or insurance support - and with the wrong jury they could win.

 

[Ron]

cedarbluffranch....OK...you can now accuse me of lecturing! You wrote: "I'm not a believer in insurance since insurance underwriting is a for-profit enterprise."

Would that make you not believe in engineering? <g>

Here's the lecture...liability is often incurred by what you write. In general, write everything knowing that an attorney will read it at some time. It is a good practice to have anything you write reviewed by another person familiar with your subject.

Your written statements generally have at least two meanings: First, the one you intended. Second, the one you didn't intend; but that the lawyer convinces everyone else you meant.

To mitigate liability, write and review carefully! Liability avoidance is a career-long process that must be reiterated routinely in order to achieve a modicum of success. Lawyers are wordsmiths...we engineers are not.

 

[msquared48]

This is a portion of the verbage in one of my contracts that my attorney wrote for me 20 years ago. It is an attempt to limit my liability, but, as my attorney told me, may not hold up in court. However, unless you ask for it in the contract, the court will not award it. So I do include it. Some object, but I show them the door...

"With respect to all services of the Engineer, other than those in reliance upon services furnished by the owner, the services of the engineer will be performed in a manner consistent with that level of care and skill ordinarily exercised by members of the Engineering profession currently practicing within the State of Washington under similar conditions and circumstances. However, the engineer shall not be liable to the Owner, the Owner’s consultants or contractors, or any third party, for any defect in the design of the project, or in the performance of the Engineer’s services, pursuant to the agreement which arises out of or relates to the Engineer’s reliance upon services furnished by the Owner, except and only to the extent that the Engineer’s reliance on such services constitutes gross negligence.

The Owner will indemnify and hold the Engineer, its agents, employees and consultants harmless from and against any and all claims, losses and expenses (including reasonable attorney’s fees) arising our of or relating to the construction of the work or the performance of any services furnished by the Owner, except to such extent that such claims are attributable to the negligence of the Engineer. If the Engineer is required to incur additional expenses, including attorney’s fees, in enforcing its indemnity obligation, such attorney’s fees and costs will be the obligation of the Owner.

The Owner agrees that all of the material representations and warrants of the Engineer to the Owner have been included in this Agreement. The Owner agrees that any representation or warrant of any kind, whether verbal or written, which is not expressly stated in this Agreement, is no longer part of any agreement between the Owner and the Engineer. The Owner agrees that warrants or representations of any kind that are not expressly included in this Agreement shall not be enforceable.

The Owner expressly agrees that the entire liability of the Engineer for any and all claims of any kind and nature arising out of or relating to the Agreement shall be limited to the amount of the Engineer’s compensation."

I do agree with Ron too. You cannot realistically expect to release yourself of all liability when you have received compensation. One incurs the other.

Hope this helps to clarify the muddy water here.


Mike McCann
MMC Engineering

 

[Ron]

Mike,
Those are good clauses. Similar to the ones I have in my terms and conditions. We must get a narrow form indemnity in our contracts (where our liability is based on our own negligence only)for a couple of reasons...one, most professional liability carriers require it, and two, it forces your adversary to prove your negligence (that's sometimes harder than you might think). If you meet your professional standard of care in your area, then you are generally not negligent in your practice.