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Insurance required for design work?
- Thread starter TXMEEN
- Start date
Not sure where you are from, but here in New Zealand we are not required to have insurance.
BUT most clients request a broadform Liability Cover.
which includes among others
General Indemnity
Product Liability - Design Defect etc.
Vibration, Removal or Weakening of support
Punitive and Exlemplary damages
Mine is for $4,000,000. cost about $900 per year.
TXMEEN...yes, insurance for engineers is somewhat of a necessity, whether company or individual. It is called "Professional Liability Insurance" or sometimes,
"Errors and Omissions" insurance.
There are probably 4 or 5 major carriers who write it in the US. Since you are in Texas, it would be a good idea to have it (or any other state for that matter).
It is not nearly as inexpensive as karmoh noted for New Zealand. A $1,000,000 professional liability policy with a reasonable deductible (say $10,000) will cost somewhere between about $8,500 and $30,000 per year, depending on your fee volume. It is based on gross revenue, so any subcontract fees are included in that.
General liability insurance is relatively cheap. You can get a $1,000,000 policy for about $1000 per year. It covers almost nothing except property damage though.
"Errors and Omissions" insurance.
There are probably 4 or 5 major carriers who write it in the US. Since you are in Texas, it would be a good idea to have it (or any other state for that matter).
It is not nearly as inexpensive as karmoh noted for New Zealand. A $1,000,000 professional liability policy with a reasonable deductible (say $10,000) will cost somewhere between about $8,500 and $30,000 per year, depending on your fee volume. It is based on gross revenue, so any subcontract fees are included in that.
General liability insurance is relatively cheap. You can get a $1,000,000 policy for about $1000 per year. It covers almost nothing except property damage though.
- Thread starter
- #4
That is exactly what I was looking for. I knew it was there but didn't know what it was called.
I can see how you would need it if you were designing a bridge. What about if you are designing simple products like a dog food dispencer, blender, or pickup truck/ATV accesory?
I can see how you would need it if you were designing a bridge. What about if you are designing simple products like a dog food dispencer, blender, or pickup truck/ATV accesory?
Suppose the beloved Fufi gets her paw caught in the dog food dispenser and mangles it (the paw) trying to remove it? Fufi's owner sues you for improper design or insufficient warning in the instructions, or.... (you should have anticipated that Fufi would get her paw caught...after all, she has to eat). You now have a product liability claim. You hire an attorney at $200 to $400 per hour to defend you. You spend $30,000 to $50,000 (and that can be quite low)to defend the claim in mediation, arbitration, or court. If you have no insurance it's out of pocket. Suppose you win? Well, you could get attorney's fees, but you'd still be out for time lost, poor cash flow in the process, and extra expenses like expert witnesses (not always recoverable).....and if Fufi's owners have their assets protected or have no assets, you could get a nice piece of paper from the court (a judgment) that says they owe you a bezillion bucks...now try to collect it!
OR EVEN WORSE....Your dispenser has a small knob, attached by a screw. It is visible and outside the dispenser. Junior, Fufi's human companion who is two years old, plays with the knob and it comes loose. Junior puts knob in mouth, swallows, chokes and dies.......imagine the consequences of that one!
Any product, no matter how simple, if put in the retail marketplace, has a potential for a product liability claim. If it has moving parts or is used by the general public, the odds go way, way up!
OR EVEN WORSE....Your dispenser has a small knob, attached by a screw. It is visible and outside the dispenser. Junior, Fufi's human companion who is two years old, plays with the knob and it comes loose. Junior puts knob in mouth, swallows, chokes and dies.......imagine the consequences of that one!
Any product, no matter how simple, if put in the retail marketplace, has a potential for a product liability claim. If it has moving parts or is used by the general public, the odds go way, way up!
GregLocock
Automotive
As a wiser head has observed, you probably don't want to take legal advice from an engineer, or engineering advice from a lawyer.
The man who designs a chainsaw or a machinegun is probably not a PE.
Cheers
Greg Locock
New here? Try reading these, they might help FAQ731-376
The man who designs a chainsaw or a machinegun is probably not a PE.
Cheers
Greg Locock
New here? Try reading these, they might help FAQ731-376
- Thread starter
- #9
I have not yet requested quotes for the insurance but probably will soon.
If it really is that expensive, is it posible to be safe and get started with no clients/work and try to build up the work that comes in?
If you have a deal with someone and have a contract for $100,000 to get started, then yes, you can get started knowing you have the funds for the insurance.
If you want to start small and work your way up, you may make $3000 your first year and will have lost money because that wont cover the insurance.
Is there a solution or is this the reality of it? I am very interested to see what kind of quotes are provided.
If it really is that expensive, is it posible to be safe and get started with no clients/work and try to build up the work that comes in?
If you have a deal with someone and have a contract for $100,000 to get started, then yes, you can get started knowing you have the funds for the insurance.
If you want to start small and work your way up, you may make $3000 your first year and will have lost money because that wont cover the insurance.
Is there a solution or is this the reality of it? I am very interested to see what kind of quotes are provided.
I answer this from personal experience. My first year in business (2005), I practiced alone. I obtained Professional Liability insurance in the amount of $1,000,000, and I paid about $10,000 in insurance premiums. As we grew and our revenue increased, my premiums went from $10,000 to $25,000 in two years. I then started shopping for different insurance. After much searching and delay, found a carrier that would provide the same level of insurance with the same deductible for about $12,000 per year. That's where I am at this time.
About the best you can hope for is an insurance premium in the range of about $5000 per year, for an individual. If you want a lower coverage amount, the premium will be lower. It just depends on how much personal risk you want to take on. It's just another cost of doing business.
About the best you can hope for is an insurance premium in the range of about $5000 per year, for an individual. If you want a lower coverage amount, the premium will be lower. It just depends on how much personal risk you want to take on. It's just another cost of doing business.
brandoncdg
Civil/Environmental
I think you can go without insurance for a year or so before stuff starts getting built. I was told by some people it's normal to get it after 2 years or if a job requires it. We are paying roughly $800/month for everything.
Civil Development Group, LLC
Los Angeles Civil Engineering specializing in Hillside Grading
Civil Development Group, LLC
Los Angeles Civil Engineering specializing in Hillside Grading
brandoncdg...if you design something today and it doesn't get built for two years, why does that negate your design liability? If you were not covered by insurance at the time of your service to the client, you won't be covered for subsequent events.
But when is "designing"...designing?
Suppose one "designes" a part/drawing based on specific and exactly according to customer specifications. Would this be considered "designwork" in case of a legal dispute? Something in the general terms and conditions of:
"COMPANY X PROVIDES NO DESIGNWORK IN ANY WAY, SHAPE OR FORM. IT'S WORK IS SOLELY BASED ON INFORMATION AND SPECIFICATIONS PROVIDED BY THE CUSTOMER"
Does one need liability in such cases at all? Or would this be a cake party for (nasty) lawyer types?
I feel this could quickly become a minefield, or i'm a wrong?
TXMEEN, sorry for somewhat hijacking your thread...
Suppose one "designes" a part/drawing based on specific and exactly according to customer specifications. Would this be considered "designwork" in case of a legal dispute? Something in the general terms and conditions of:
"COMPANY X PROVIDES NO DESIGNWORK IN ANY WAY, SHAPE OR FORM. IT'S WORK IS SOLELY BASED ON INFORMATION AND SPECIFICATIONS PROVIDED BY THE CUSTOMER"
Does one need liability in such cases at all? Or would this be a cake party for (nasty) lawyer types?
I feel this could quickly become a minefield, or i'm a wrong?
TXMEEN, sorry for somewhat hijacking your thread...
- Thread starter
- #14
321GO, that is an interesting thought.
One school of thought is that a design is only defective if it does not satisfy the the initial design criteria. If you are asked to design a lift that can hold 10,000 pounds and you appropriately size all the members to hold the weight, you satisfy the criteria.
What happens when someone walks underneath it while somoene else is lowering it and that person gets crushed. Although this was a forseable event and you could have designed some sort of railing, you were not asked to, you were only asked to build something that could lift the weight. Is this a defect. There are codes and standards out there that can be used when designing but they may not reference ever scenario or design.
Whose responsibility is it to take safety into consideration and implement it into the design? The client wanting the lift built or the engineer designing it? I have my opinion but it would be interesting to hear what others think.
One school of thought is that a design is only defective if it does not satisfy the the initial design criteria. If you are asked to design a lift that can hold 10,000 pounds and you appropriately size all the members to hold the weight, you satisfy the criteria.
What happens when someone walks underneath it while somoene else is lowering it and that person gets crushed. Although this was a forseable event and you could have designed some sort of railing, you were not asked to, you were only asked to build something that could lift the weight. Is this a defect. There are codes and standards out there that can be used when designing but they may not reference ever scenario or design.
Whose responsibility is it to take safety into consideration and implement it into the design? The client wanting the lift built or the engineer designing it? I have my opinion but it would be interesting to hear what others think.
If you are an engineer and are providing a design for a client, you are responsible for that design. It matters not that your client has specified all the loads and criteria. So what. That's just their request to you to provide a competent, responsive design within those performance criteria. You are still responsible for the appropriate structural and safety design of that device.
If you think not, you'll get a rude awakening when the legal proceedings start.
If you think not, you'll get a rude awakening when the legal proceedings start.
Maybe i'm not quite clear what i meant with "the customer is suppying the spec's"
Suppose the customer say's "build me a 20 foot oak wood ladder with 2 inch dia. spokes"
You clearly inform him that you will do as he tell's you and that you will not be doing any design check's on his spec's. This will be stated in the terms & conditions, on the final drawings and on your quotation to the customer.
By signing the quotation, the customer is fully aware of this fact and is clearly informed what he can and cannot aspect from the "designfirm".
The 2 inch dia. spokes seems reasonable by your engineering judgement and "accept it". Now, after being build and installed, someone cracks the bars, falls and the worst thing possible happens...
Post mortem investigation: bars should at least be 3 inch thick, so the 2 inch spec was clearly incorrect.
Where does this leave the "designfirm" in the whole deal? Would it be liable? If business is done this way, would they need a liability insurance at all?
That's what i meant by "when is designing, designing"?
Suppose the customer say's "build me a 20 foot oak wood ladder with 2 inch dia. spokes"
You clearly inform him that you will do as he tell's you and that you will not be doing any design check's on his spec's. This will be stated in the terms & conditions, on the final drawings and on your quotation to the customer.
By signing the quotation, the customer is fully aware of this fact and is clearly informed what he can and cannot aspect from the "designfirm".
The 2 inch dia. spokes seems reasonable by your engineering judgement and "accept it". Now, after being build and installed, someone cracks the bars, falls and the worst thing possible happens...
Post mortem investigation: bars should at least be 3 inch thick, so the 2 inch spec was clearly incorrect.
Where does this leave the "designfirm" in the whole deal? Would it be liable? If business is done this way, would they need a liability insurance at all?
That's what i meant by "when is designing, designing"?
As a designer who has knowledge of engineering principles and material properties, you have a duty to inform your client that their specifications are insufficient. To do otherwise, and particularly to accept their specification as "acceptable" without adequate checking, would likely be considered negligence. You cannot disclaim negligence in a contract...you are responsible for your negligent acts, without regard to your client's instructions or your contract.
Ron, makes sense.
But, this does imply that the customer must additionally supply the loading cases for the part he want's designed, not?
How else can a (simple)designcheck be performed?
For the ladder, this would be fairly straightforeward, it's intended for humans and we can work from that.
But what if the customer cannot supply these load cases and the designer has no knowledge and thus no idea for the loading cases to use?
Should he then decline the customer's request?
But, this does imply that the customer must additionally supply the loading cases for the part he want's designed, not?
How else can a (simple)designcheck be performed?
For the ladder, this would be fairly straightforeward, it's intended for humans and we can work from that.
But what if the customer cannot supply these load cases and the designer has no knowledge and thus no idea for the loading cases to use?
Should he then decline the customer's request?
Yes, getting performance information from the client is necessary to provide a proper design or at the least to achieve the expectations of the client. As an example, in buildings, we must know if the client intends to use the building in a certain manner (office, library, residence, etc.). Once we know that, we can develop the loadings. It isn't so easy sometimes with product design. You sometimes have to not only anticipate the use of the product, but the obvious misuse of the product, if it is foreseeable.
If the customer has no knowledge of the needed design or performance parameters, and neither does the designer, it's time for the designer to bow out. If it is a "one-off" prototype, then you can research and reach a mutual agreement perhaps, but if it is a relatively straightforward product about which you have no knowledge or experience, it might be better to decline.
If the customer has no knowledge of the needed design or performance parameters, and neither does the designer, it's time for the designer to bow out. If it is a "one-off" prototype, then you can research and reach a mutual agreement perhaps, but if it is a relatively straightforward product about which you have no knowledge or experience, it might be better to decline.
Ron,
I'm not sure what you say applys everywhere.
I've been in situations where the customer won't or can't give detailed specs.
We design based on what we know, engineering judgement etc.
We then clearly state what the item should be able to do.
I'm not sure what you say applys everywhere.
I've been in situations where the customer won't or can't give detailed specs.
We design based on what we know, engineering judgement etc.
We then clearly state what the item should be able to do.
Posting guidelines faq731-376 (probably not aimed specifically at you)
What is Engineering anyway: faq1088-1484
What is Engineering anyway: faq1088-1484
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