Structural Engineering Liability - Wetstamp 10

[Ambemily]

My firm is working with a home builder on doing new residential design. They have Errors and Omission insurance but I wanted to make sure the contract was written so that I am personally protected. I've been reading that I will be personally responsible in the event that my firm is no longer in business or they drop their insurance within the statute of limitations period in our state. My question is we currently have a contract set up with the home builder for the design of a single plan. My employer did not put any terms or conditions or limitations for liability in the contract, just simply the fee. We are now being asked to wet stamp the same plan for use at multiple lots. For each lot this house is built at does my liability increase? If there was an error in the design, can I be potentially sued for the total number of times this single plan was built? Or is there a way to set up a contract so that it is limited to the single design and not duplicated?

I'm hoping for some guidance on what is typically done for contracts/liability when a single design is replicated and used in multiple locations.

 

[Ambemily]

The states I am working in are Oregon and Washington state

 

[r13]

Take WARose's advice. In any place, I believe, unless you have conducted technical mistakes, or negligence, you're not liable for the company's contractual obligations. We are not compensate enough to carry the company's operation/business mistake/debt.

Pham,

I was a consulting engineer throughout my career.

 

[WARose]

Take WARose's advice.

Actually in some states.....Ron's advice might be better (see the edit in my last post).....in others, apparently mine will fly.

I think the deep pockets theory will be the saving grace. if you are working for Jacobs or Fluor....chances are, a engineer personally won't interest the ambulance chasers.

I just have to say: it infuriates me that the organizations that (supposedly) represent us waste time with stuff that makes our life harder (i.e. CEUs, raising the bar, etc)......and won't address this.

 

[dik]

With the CEU and PDH requirements, having been in place for several years, members should be asking their associations if they can provide statistical information that shows these have significantly benefitted the profession. Enough years have passed that there should be samples large enough to show that it has improved the profession... likely measuring a large number of complaints, or violations, for example. Else practicing engineers are wasting thousands of hours to achieve nothing.

Rather than think climate change and the corona virus as science, think of it as the wrath of God. Feel any better?

-Dik

 

[WARose]

With the CEU and PDH requirements, having been in place for several years, members should be asking their associations if they can provide statistical information that shows these have significantly benefitted the profession. Enough years have passed that there should be samples large enough to show that it has improved the profession...

Yeah, I'd like to see that number myself.

 

[r13]

I do respect and appreciate Ron, PhamENG's write ups, there are lessons to be learnt. However, I think there is a line between company's legal obligation and technical personel's. The latter just not been, and will never be, compensate enough to carry the former's obligation, or take responsibility for the sinking boat. Note that I don't exclude employees conducted technical wrong doing.

Depending on the state laws, an engineer can be held individually liable for acts done on behalf of a company.

A company went under before the delivery of the complete design, who is responsible for the developer/home builder's claim on breach of contract and monetary loss, the EOR?

Another company went under, a previous design was identified as the culprit, the owner is missing, and the EOR has past away, who is responsible in the liability lawsuit, the director, the designate officer, or the design engineer?

 

[WARose]

I do respect and appreciate Ron, PhamENG's write ups, there are lessons to be learnt. However, I think there is a line between company's legal obligation and technical personel's. The latter just not been, and will never be, compensate enough to carry the former's obligation, or take responsibility for the sinking boat.

In my case, that's been a big point of contention because I've worked at some places that were not worth one red cent in assets.

 

[phamENG]

r13 - based on what some have indicated their lawyers have told them, it varies quite a bit between states. Perhaps in your state there is no risk to an employed engineer who acts as EOR. In some states, however, the Engineer of Record carries statutory liability that can result in them being on the hook. This, however, would NOT extend down the ladder. The project engineer and draftsman, for instance, were working under the direction of the EOR and the EOR bears the professional responsibility. Exercising the responsibilities of a Professional Engineering license brings with it the consequences in case of a mistake.

In your first example, the EOR would not be responsible. That's a contractual dispute, not a question of professional negligence or an error/omission in a design.

In your second example, I think they'd do everything they could to find the ex-firm's owner. Depending on the laws in the state, they may go after the EOR's estate, but I have no idea how that would work (not to mention the person filing the suit would have to be pretty cold blooded...).

Here in Virginia, nobody I've asked has ever been able to point to a statute or case law that indicates an EOR, acting as an employee, has a de facto legal shield - everyone just points to the deep pockets defense and says I don't have anything to worry about. As a result, I refused to use my seal until I hung my own shingle and took out my own E&O insurance policy.

 

[r13]

pham,

I don't know whether to say you are prudent, or worry too much for so remote possibility that has no known case. I promote the former attitude, but I want people to avoid the latter. Rather, the best protection for an engineer is be attentive to details and to do your work correctly, no matter you are stamping the drawings or not. Also, we can't be responsible for other person's (the employer, or person not under your charge) actions, for which we have no control, and are not profiting from theirs actions.

However, it is prudent, if you've ever been the EOR for a company that go under, to seek advice from a lawyer, and explore the necessity to extend professional liability insurance.

 

[sandman21]

Liability of Employed Engineers not sure why so much discussion. As Ron and pham are mostly right. You can find a number of 9th circuit court cases regarding an engineers duty to not just the client but the contractor. Truly fun to work in CA.

 

[r13]

The article linked above is a good reading material. Some excerpts here:

1. Can an employed engineer be sued separate and apart from the engineer's employer being sued?
As a general rule, when an engineer negligently performs services on behalf of his firm or employer, the individual allegedly suffering damage from the engineer's negligent performance may sue the company and/or the individual engineer.

3. Is it a good idea for an employed engineer to purchase his or her own professional liability insurance policy?
Individual professional liability insurance policies for employees have not been the custom or practice within the engineering profession. Individual employees who believe their unique services (e.g., "cutting edge" environmental remediation services) increase their firm's liability exposure may want to discuss these issues with their employer; if warranted, the employer may want to explore these issues with its insurance broker and carrier.

4. What is the likelihood that an individual will be sued apart from the employer?
It is possible, but extremely improbable, that an individual employee would be "sued outside of the corporate liability insurance umbrella," which would mean that the individual employee would be sued but his employer would not, assuming the individual engineer was acting within the scope of his employment.

5. What happens if (1) an engineering employer goes out of business, (2) an engineering employer discontinues its professional liability insurance coverage, or (3) an employee leaves the firm and is later named in a law suit relating to a project with the former employer?
When an engineering employer firm goes out of business or discontinues professional liability insurance coverage, this situation could create potential liability exposure for the individual employed engineer, particularly where the employed engineer's name and engineering seal are on engineering documents prepared on behalf of the firm.

7. Any final advice?
As the practice of engineering evolves and the role of the employed engineer changes, professional engineers and their employers must continue to be aware of their liability exposure as employed engineers.

 

[dik]

and based on my experience... anyone else that can be added to the list. If a lawyer misses someone, they can be sued for not including them.
and the engineer and the company can be sued jointly.
In Canada, engineers can be sued criminally for some environmental issues.
...doesn't matter if within the scope of his employment.
In Canada, most insurance policies I'm aware of, provide for ongoing coverage...


Rather than think climate change and the corona virus as science, think of it as the wrath of God. Feel any better?

-Dik

 

[r13]

Most importantly - don't commit wrong doing knowingly, and gross negligence.

 

[WARose]

Approaching this from a judgment-against-you scenario.....I don't know that all would be lost. Declaring bankruptcy could be a option (to avoid losing your home). I'm sure there are other things you could try.

Keep in mind (to use a famous example): OJ got a 30 million judgment against him....and he's paid virtually none of it. (I don't know how much his relocation to Florida played in that though.)

So you got options. (Sticking up a hotel room in Vegas shouldn't be one of 'em though. )

 

[Ambemily]

Hey all,
I wanted to provide a follow up. My employer has reached out to their attorney to help answer this question. This is the response we've received.

"I spoke with a few insurance attorneys in our office, and the consistent response was that as a practical matter, it is incredibly rare for an individual engineer employee to be sued personally regarding work performed by or for the firm. We almost never see an individual engineer sued for some alleged design flaw that presumably leads to property damage or bodily injury. Usually it would just be the engineering firm entity being sued.

There are a couple caveats to this, generally speaking. If an engineer, for example, drew up shoddy plans, the plaintiff could theoretically sue the individual engineer in her personal capacity. But generally the company itself is the one with the money the plaintiff paid or against which the plaintiff could collect, which is why the individual employee doesn’t get sued. However, an individual can also be sued even if the engineering firmed is dissolved or has no assets, and dissolution of the company was for questionable reasons (such as trying to avoid liability) or if the company was not properly capitalized from the beginning. This is usually limited to shareholders or other owners of the firm, not employees, although it can depend on specific facts of the scenario.

But even if a company were to dissolve, the company’s General Liability (GL) policy that was in place at the time the acts occurred would normally be triggered if the complaint alleges a claim that could potentially be covered. That is true even if the complaint comes a few years down the road and the GL policy is no longer in force, as GL policies are “occurrence” based rather than “claims made.”

The company’s E&O policy may also be triggered but it may be set up as a claims made policy, which is where the “tail” or “extended reporting period” (ERP) you mentioned would come into play. Hopefully the ERP is long enough to cover the Statute of Limitations for claims against design professionals, which in Oregon is generally two years, but depends on the claim and specific facts of the scenario.

Regarding employee coverage, the vast majority of CGL and E&O policies our office has dealt with cover both the entity and “employees” (a defined term). Assuming the employee is working within the scope of their employment, the employer’s policies should cover the employees, subject to the terms of the policies. That’s not to say an aggressive plaintiff won’t sue the individual in addition to the firm, but ultimately, the firm’s insurer should pick up the defense and pay for covered indemnity for the individual engineer. Assuming the firm has adequate liability limits (so, for example, you aren’t working on projects where the employer could incur $100 million in liability and have a policy that only has $1 million limit), the employee shouldn’t be concerned. This all assumes that there isn’t any ownership interest for the employee (as noted above, it then gets more complicated), the employee should never incur personal liability for the work she does for the employer. However, we would need to review your specific professional liability/E&O policy to determine whether it covers individual employees in addition to the named insured entity, to be sure."

I will formulate a response to the attorney, but I'm curious as to what liability you typically put in your contracts. The attorney's letter says "Assuming the firm has adequate liability limits (so, for example, you aren’t working on projects where the employer could incur $100 million in liability and have a policy that only has $1 million limit), the employee shouldn’t be concerned." In our current contract my employer has it written so that we are liable up to our maximum insurance policy (1 mil). If we design a single house, and let it be re-used 10 times (with a fee for reuse) and a design flaw is found later, could we potentially be sued for 10 mil and run into a problem? What do you typically limit your liability per project/occurrence to?

Any suggestions on things I should ask the attorney in my response that I may not be thinking about?

 

[r13]

I think you will likely to lose your vacation home, but not the residence you are living in. The trouble is the discipline by the licensing board, that may make you unemployable in the engineering field again.

 

[phamENG]

If your firm signs over the rights to the plans, then they are potentially signing over an open ended liability. It could get sticky though - does the $1 million apply to the surrender of rights? That would be one for the lawyer to consider.

It's never a good idea to sign over the rights to your plans. We provide a service, not a product (at least not in the way a car company does). Yes, you can call our drawings, etc. a product, but the value is in the intellectual effort put into its creation, not the paper itself. Those drawings are your intellectual property, your client simply has a license to use them for one building. If they want to use it for more than one, have them pay for each license.

 

[r13]

That's a good advice. We are providing services, not selling products.

 

[Ambemily]

Just to clarify, we would not be providing a stamped plan that could be used anywhere. We are providing a single design (unstamped) and only providing stamped drawings/calculations for specific lots at a development. They pay a large price for the design of the house, even though it's unstamped, and then pay a smaller fee for the stamped specific lot drawings and calculations. So, we are not signing over the rights to the design and they cannot use the plan anywhere they choose.

 

[phamENG]

In that case, there's still a chance you could be sued if they use it elsewhere. But then you'd have a leg to stand on since they would have used it without permission and violated your firm's copyright. If you can, convince your firm's management to put a clause in their operating agreement that states that, in the event of the disollution of the firm, copyrights for all designs will revert to the engineer of record. That way, if they use the design and something goes wrong and the firm is no more, you'd hold the copyright and could turn around sue them for violating your copyright.