When to get Prof. Liab. Ins.?

[StructuralEnginerd]

When should I get Professional Liability Insurance? I just took the SE and am waiting on my results to come in after the new year and and am expecting a passing score. I have made a few contacts with home inspectors that can possibly refer me structural inspections. I have not started anything yet. I am not about to quit my job but want to be able to make some extra money on the side and see where it goes. And I am in the process of filing an LLC for this structural inspections business. I have been told that I don't need insurance until I start making around $10k a year with this side business. Otherwise, it would eat my profit. Has anyone gone through this before? Any advice is much appreciated.

 

[JedClampett]

If your state doesn't license home inspectors (a lot do), and you really can get work from your contacts (not a sure thing to me), I'd call a lawyer. Any professional practice where you privately offer your expertise for reimbursement, might get you sued. And there's no minimum that you can't get sued for.

 

[KENAT]

Just because it would eat your profit, does not necessarily follow you don't need it.

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[JAE]

I know some engineers "go naked" with respect to insurance and many, I believe, set up their LLC or corporation and are very careful to keep their personal finances and business finances separate and all engineering work goes through/under the corporation. Thus, if sued, the theory goes, the suit must be to the business and the owners of that business are personally protected by the corporation. So with a small entity (one person engineering firm) the firm would simply go bankrupt if sued and the engineer's personal property (home, bank account, etc.) would be protected.

I don't know if this works in actual practice - just what I've been led to believe.

So per Jed - call a lawyer.

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[JAE]

And sorry about the naked reference....sort of Dilbert-like (see attached (suitable for work don't worry)



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[msquared48]

Been naked for years JAE, but don't tell anyone.

Mike McCann, PE, SE (WA)

 

[zdas04]

Yeah, talk to that lawyer. I did. When I got my P.E. I worked for an Oil & Gas company. I was summoned to the corporate offices to get "the P.E. talk" from the corporate attorney's. What they said was:
[ul]
[li]We are happy that you got your license, and we are happy to have paid your cost to prepare for the test and to take it. Having P.E.'s on staff improves our corporate credibility. We will not pay for you to get a stamp because we would rather you didn't even have one.[/li]
[li]If you stamp anything, and you get sued, the company cannot defend you, we can't defend you to the point that your pay will be docked for time spent with your counsel (that we can't pay for) or in court.[/li]
[li]If you form a corporation of some sort to hide your assets, it will not work because suits against P.E.'s must be filed against the licensed individual, not his company.[/li]
[li]In short, unless you are insured (and the company cannot pay for that either) DO NOT STAMP ANYTHING. EVER.[/li]
[/ul]

That was the advice I got. Your attorney may give you different advice.

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist

 

[IRstuff]

In states like California, you cannot use an LLC to shield you from professional liability. This applies to doctors, and, presumably, to PEs.

TTFN
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[SteelPE]

When do you get insurance? I would say it depends on how big your coconuts are. I don't have coconuts, too cold to grown them here in the north east, so I carry PL insurance.

I routinely talk to an old timer all the time. He is getting ready to retire a few years ago he told me that nobody can do "a little engineering". This is because insurance will eat up all of your profits and you will not make any money making the business not worth it. At this point, it takes about one month of income just to cover my PL policy. So I can see where he is coming from.

This reminds me...... I have to go pay my PL installment payment today.

 

[zdas04]

"About a month of my income [budget]" goes to insurance. That is what I pay too, but this year I've rarely made my income budget so it is closer to 2 months of what I'm actually making. Maybe things will get back to normal next year.

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist

 

[SteelPE]

zdas04

Sorry to hear that. Been on my own (not really my decision) for about 2.5 years now. This year was OK.... next year is not looking so hot at the moment.... but it could be the time of year it is.

 

[TehMightyEngineer]

What about people working under a PE who will also be getting their PE? My boss has PL insurance but is the bottleneck for our company and we really need another PE. Thus, I imagine my boss will want me to put my stamp to use. I assume I can get on his PL insurance for a small increase in the cost?

Yes, I know this is something I should just discuss with my boss but I figured it would add to this interesting discussion.

Maine EIT, Civil/Structural.

 

[StructuralEnginerd]

Thanks for all of the replies.

I am aware that the LLC will not shield the engineer from being sued. It is a small fee in my state to set one up, so I am doing so more for tax reasons and marketability.

I spoke with a more senior engineer on this subject. He said that I shouldn't get insurance until I have enough income from this side business to pay for it. And with the structural home inspections, I will not always need to stamp the report. And I do not think that I will be doing a lot of design, at least at first. He also said that I could use his stamp until I get my own.

A good point was made earlier. I am trying to do a little engineering on the side and avoid any unnecessary costs. Does it make sense to get PLI for a business that makes $5k annually when the same PLI plan would work if I were making $125k annually?

 

[KENAT]

Structural Enginerd this is to do with your risk tolerance.

What happens if you get sued without PLI?

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[SteelPE]

This is definitely something you should discuss with your boss when you get your license. There are options your company has. You need to make sure you are protected and nobody is going to do that for you but yourself.

If you end up sealing drawings you also need to discuss what happens to the insurance if:

1)You leave and go to work with another company
2)Your boss dies
3)Your company goes out of business.

I eluded in my last post about being a consultant wasn't really my decision. Item #2 and item #3 happened within a few months of each other. I had previously discussed item 1 with my company but never gave a though to item 2 or 3. It was not a comfortable situation and was a huge problem that could have been prevented had I actually given thought to item 2 and 3.

 

[SteelPE]

Structural

I am not entirely certain, but if I remember correctly, according to my carrier, there are minimums with regards to insurance and premiums. That is, it doesn't matter if I bill $5,000 or $100,000 I am considered a small company and am billed a minimum amount (which believe me, its minimal). You may want to discuss with your agent.

 

[TehMightyEngineer]

Structural: My boss does home inspections and recently someone tried to take legal action against him because apparently he was supposed to see a rotten sill plate though a wall with no access to the sill and was also supposed to somehow prevent the contractor from charging 4 times more than it should have cost to fix it. He has a clause in his inspection agreement that states he is only liable for the cost of the inspection and nothing else (along with typical inspection language about how you can only report what you can observe and so on). Anyway, this stood up to legal scrutiny so, unless you did something grossly incompetent you might discuss such things with a lawyer and find that PLI may not be required for inspections that do not require any actual engineering.

Maine EIT, Civil/Structural.

 

[beej67]

I know some engineers "go naked" with respect to insurance and many, I believe, set up their LLC or corporation and are very careful to keep their personal finances and businessfinances separate and all engineering work goes through/under the corporation. Thus, if sued, the theory goes, the suit must be to the business and the owners of that business are personally protected by the corporation.

I do not think this works with professional liability like it does with general liability. Otherwise, nobody would ever get insurance.



Hydrology, Drainage Analysis, Flood Studies, and Complex Stormwater Litigation for Atlanta and the South East -

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[IRstuff]

"Thus, if sued, the theory goes, the suit must be to the business and the owners of that business are personally protected by the corporation"

You can try to do all that, but lawyers are not idiots, and they've probably seen every single possible dodge that exists for trying to avoid liabilities. To truly insulate your personal property requires an enormous setup to ensure that it survives even the most cursory audit or discovery. Here's one lawyer's view of things:

http://www.helsell.com/faq/faq-asset-protection-planning/

My read on that is that if you want to "go naked," you need to get divorced, to protect your spouse.

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[JAE]

beej67 - not sure about that - my comment was about protecting the individual - not the corporation.
The corporation should definitely have the insurance.

I've never held PL insurance for myself personally...my firm always has had the PL insurance.

But as IRstuff comments above - some states like California don't allow the LLC to protect the person.

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