LLC and professional liability

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Author Message David Axt, AIA, CCS, CSI Senior Member Username: david_axt Post Number: 953 Registered: 03-2002 Posted on Friday, January 04, 2008 - 06:55 pm:    Does forming a Limited Liability Corporation really protect you? Anonymous   Posted on Friday, January 04, 2008 - 07:27 pm:    from what? mice? tornadoes? bee infestations? David Axt, AIA, CCS, CSI Senior Member Username: david_axt Post Number: 954 Registered: 03-2002 Posted on Friday, January 04, 2008 - 09:13 pm:    Lawsuits! The title of the tread does mention "professional liability"! I believe that rodent/insect infestation and weather related incidents are excluded from professional liability claims. Ron Beard CCS Senior Member Username: rm_beard_ccs Post Number: 245 Registered: 10-2002 Posted on Saturday, January 05, 2008 - 09:21 am:    My understanding is that one of the primary advantages to a LLC is, in the worst case scenario, all that one loses is the assets of the corporation. Any personal property is protected from attachment. Jeffrey Wilson CSI CCS Senior Member Username: wilsonconsulting Post Number: 14 Registered: 03-2006 Posted on Saturday, January 05, 2008 - 01:05 pm:    Protection varies according to state law. My attorney tells me that in PA, where my spec consulting business is based, my corporation (Subchapter S, which is not fundamentally different than an LLC) offers little if any barrier to personal liability for professional services rendered by my firm. That's one reason I carry professional liability insurance. Anonymous   Posted on Saturday, January 05, 2008 - 01:42 am:    If you're in Calif and a registered architect, forget about any protection. One attorney told me that being a registered/licensed "professional" of any sort does not generally shield that individual from any of the company's liability. This same attorney was less certain about protection afforded unlicensed individuals. I'm a S-corp, but I'm also not licensed/registered arch or engr (nor CCS'd, LEED AP'd and have no desire to formally accredit or certify myself for that reason). Even so, I (or rather the corp) still carry E&O insurance...and I refuse to enter agreements/contracts that require "practically" unlimited liability. Mark Gilligan SE, CSI Senior Member Username: mark_gilligan Post Number: 18 Registered: 10-2007 Posted on Saturday, January 05, 2008 - 06:25 pm:    If you are a licensed professional providing professional services then you cannot shield your personal liability by use of a corporation. I do not believe certifications such as CCS and LEED AP fall into that catagory. The personal liability only applies to those projects in your firm (assuming it is a corporation) where you are providing professional services and then typically only those where you are the design profesional of record. Even when you have personal liability typically the courts will not go after your personnel assets if the firm has reasonable insurance coverage. It also helps that in many cases that design professionals are not super rich. If as a specification consultant you can make the case that you were not hired to provide professional services you should have no personal liability. I would expect that the lack of a professional license would make it hard for them to claim you were hired to provide professional services. My guess is that few if any unlicensed specification consultants have been sued for their technical contribution to the project. I believe that this is not something you should worry much about. For the record I am a registered Structural Engineer in CA. As I understand it the rules are similar in all states. C. R. Mudgeon Senior Member Username: c_r_mudgeon Post Number: 56 Registered: 08-2002 Posted on Sunday, January 06, 2008 - 02:47 pm:    Interesting. Some specifiers are complaining that they are not taken seriously as professionals, while others (some of the same people?) don't want to accept the responsibility that comes with providing professional services. Phil Kabza Senior Member Username: phil_kabza Post Number: 296 Registered: 12-2002 Posted on Sunday, January 06, 2008 - 08:26 pm:    I've recently had similar conversations with a client architect. Where does her liability leave off and mine begin? After all, the drawings and the specifications are her instruments of service, prepared under her supervisions and direction and sealed by her. We are consultants to her. Our professionalism is not the issue - our project role is. She makes design decisions after receiving advice from us; the specifications prepared by us reflect her decisions. Negligence on our part would constitute our not doing what she directed, and her being damaged because of it (and because she failed to review and notice the error). If we were working under circumstances where we were required to seal our specifications as some type of joint designer of record, that circumstance would change. We typically negotiate some indemnification and limits of liability clauses in our master agreements. As for forms of corporation, being a Subchapter S corporation (or a C corporation) is an IRS tax status election and does not have to do with the corporate shielding of personal liability of the shareholders; such shielding of liability, if any, falls under state incorporation statutes and case law. Ron Beard CCS Senior Member Username: rm_beard_ccs Post Number: 246 Registered: 10-2002 Posted on Monday, January 07, 2008 - 10:06 am:    It has been my experience, as an observer of course, is that the outcome of a litagation is not case law or merits of the case, it is how good or lousy the attorneys are. Anne Whitacre, FCSI CCS Senior Member Username: awhitacre Post Number: 690 Registered: 07-2002 Posted on Monday, January 07, 2008 - 01:04 pm:    depending on your licensure, you may or may not be eligible for LLC or LLP status -- and those designations vary from state to state. also if you are a sole proprietor, there may be little if any advantage. "Corporation" is both a tax status and a legal designation and a sole proprietor-owned-corporation is still taxed for the most part at the individual level, since there is effectively no corporate entity. the contract for services on each project will provide more legal protection than a legal designation, but of course you should be eliciting advice from an attorney not a web discussion group. W. Dean Walker, AIA, CCS, SCIP Senior Member Username: wdwalkerspecs Post Number: 23 Registered: 08-2006 Posted on Friday, January 11, 2008 - 01:12 pm:    I like Jerry have Professional Liability Insurance. I'm a Registered Architect in the State of Illinois and feel more comfortable having it. Some clients request that I attach an Accord Form to my agreement for Specification Consulting Services. Margaret G. Chewning FCSI CCS Senior Member Username: presbspec Post Number: 147 Registered: 01-2003 Posted on Saturday, January 12, 2008 - 10:58 am:    I have a LLC corporation and currently do not hold liability insurance. I just had a conversation with one of my clients who is holding up approving a contract with me because he feels I should have liability insurance on an institutional (college type) project. I've done a lot of work with them in the past and have two current contracts with them now. I'm not registered as an architect but have my CCS and CCCA. Not at all sure what my liability limits should be other than that stated in my contract limiting it to the amount of my contract. Any words of wisdom from the group? Mark Gilligan SE, CSI Senior Member Username: mark_gilligan Post Number: 20 Registered: 10-2007 Posted on Saturday, January 12, 2008 - 12:15 pm:    Margret What type of liability insurance are they requiring? It might be that you cannot purchase professional liability insurance if you are not a licensed design professional. You might talk with an insurance agent specializing in professional liability insurance. If you are considered, legaly speaking, as providing professional services you are held to a professional standard of care which may be less restrictive than other legal theories that may apply if you are not considered a professional. This could create a situation where the insurance company was unwilling to provide a professional liability policy to someone who is not a registered design professional. This in one of these situations where it is appropriate to distinguish between acting professionally and providing "professional services". Ronald L. Geren, AIA, CSI, CCS, CCCA, SCIP Senior Member Username: specman Post Number: 603 Registered: 03-2003 Posted on Saturday, January 12, 2008 - 02:18 pm:    Margaret, I've run across this situation several times and this is what I usually tell them (the laws in your location will differ, but may be similar): The typical design consultant is hired because of licensing laws which prohibit architects from performing those services. The design consultant, in turn, will provide instruments of professional service that are signed and sealed by that design consultant. In my case, I’m performing services to assist architects in performing their services by preparing specifications and conducting code and peer reviews. As a specialty consultant, I don’t seal the documents I prepare. Unlike design consultants who prepare and seal their own specifications, the specifications I draft are based on design decisions made by the architect; I may advise the architect on those decisions, but review and acceptance of the specifications belongs with the architect. For that reason, I don’t carry professional liability insurance, nor do I plan to. Under Arizona state law (ARS Section R4-30-101), I'm a “bona fide employee” of the architect. The Arizona Board of Technical Registration (BTR) has supported this position, at the request of Maynard Blumer, FAIA, FCSI, via a position paper dated Feb. 1990. The paper essentially stated that the specifications consultant "is providing services as a bonafide [sic] employee under the direct supervision of a registrant" and that it "would be no different than the prime professional hiring a drafting service to draft plans." In other words, a registrant or nonregistrant can legally prepare specifications for another registrant. My services are similar in nature to the LEED consultant, laboratory consultant, acoustical consultant, etc. Much of the services they provide (which I consider professional, but not regulated or licensed) include advising the architect, and may include preparation of drawings and specifications; however, they don’t seal the documents and they generally don’t carry professional liability insurance. ------- Architects (or other design consultants) may be looking for a way to slide responsibility off to someone else for doing services that they would have to do anyway if they didn't hire a specialty consultant. IMHO, insurance companies should give reductions in rates to architects who hire specialty consultants to perform specific services, and include any specialty consultants under the umbrella of an architect's coverage because of the reduced risk--especially for specifications, code, and peer review services (sorry for the plug, I couldn't help myself). :-) I've received a few packages from professional liability insurers and they all include under the heading of "Risk Management" this question: "Does your firm have an automated master specification system?" This is like asking "Do you have a handgun for personal protection?" Are they trained or have the experience to use it? How old is it or has it been maintained? If the answers to either or both are no, then you're increasing, not reducing, risk. Mark Gilligan SE, CSI Senior Member Username: mark_gilligan Post Number: 21 Registered: 10-2007 Posted on Saturday, January 12, 2008 - 11:20 pm:    Ronald I agree with mmost of what you said but at least in California structural consultants are not hired because of licensing laws. With the exception of hospitals, Architects in California can sign for the structural system of the building. We are retained because our clients realize that we have certain expertise that they do not have and because they would rather focus their efforts architectural issues. When we provide professional services to our client whether or not we are required to sign drawings we have potential liability exposure. In such cases they want us to have insurance as a way of minimizing their risk. It would not surprise me if their Errors and Omissions insurance carrier gives charges less if they have consultants with insurance. Jeffrey Wilson CSI CCS Senior Member Username: wilsonconsulting Post Number: 15 Registered: 03-2006 Posted on Sunday, January 13, 2008 - 12:06 pm:    The above posts make pretty clear that there is no direct relationship between the form of company entity and liability exposure. There seems to be some confusion out there about the latter topic, so to continue the discussion: Prof liability coverage in the form of Errors & Ommissions coverage is definitely available for consultants who are not licensed design professionals. I have had a policy for many years through the major carrier in the AEC industry. The policy is for "Construction, Technical & Planning Consultants." Although I qualified to take the Architect's Licensing Exam many years ago, I have deliberately avoided licensure to make clear that my role as specifier does not involve design decisions or selection of products used in the project. My agreements also clearly state that this responsibility is retained by my client, the design professional. This doesn't mean that my practice doesn't have exposure. Although we typically think of liability in terms of the usual risks faced by the design professional, there are errors I can make as an independent spec consultant that are clearly my liability. Suppose my client gives me product data that I neglect to include or properly integrate into the specs, resulting in a large change order. The design professional and its insurer will look to me for responsibilty. It is also not uncommon when there is a claim for all consultants involved in developing the CDs to be enjoined in a lawsuit. Just because I'm not the design professional does not protect me from being sued. One of the benefits of E&O insurance is that it covers litigation costs (exceeding the deductible), not just the costs of any settlement. And with the inclination of the justice system to compromise when there is any merit to a claim, I consider the chances that I will someday be involved in a settlement likely. This is my rationale for maintaining E&O coverage, which runs just over 2% of receivables.