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.

 

[zdas04]

It was explained to me that a company that holds itself out to the public as offering engineering services can (and should) provide PL insurance for any engineers in the company. The company I worked for was an Oil & Gas company that did not offer engineering services, so they were precluded by law from providing professional liability insurance. It all depends on that "holding yourself out" language like always.

I looked into the LLC and it only costs a nominal amount to set up, but what do you get for that nominal fee? The way it looked to me is:
[ul]
[li]A requirement to pay myself a salary instead of an ad hoc distribution (changing your salary requires a paper trail).[/li]
[li]A requirement to distribute excess profits periodically as "dividends"[/li]
[li]A tax form to file for the corporation (and for them to pay taxes on the dividends, you also pay taxes on them).[/li]
[li]Absolutely zero protection from professional liability suits (it would protect you if someone trips on your property, but that is about it).[/li]
[/ul]
I've been organized as a sole proprietor for 11 years now and do not regret picking that organization for an instant.

SteelPE, I'm really doing quite well, but the last few years have been phenomenal (until 2014) and the budget income is about 3 times what I really need to live on and most months I only take out about 1/3 of the budget.

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

 

[JAE]

I think the protection offered by LLC's is drastically different in different states in the US.

Check out Eng-Tips Forum's Policies here:
faq731-376

 

[zdas04]

Maybe, but in the 4 states I looked into, the LLC (or SubChapter S, etc) structure provided identical insulation between a P.E. and professional liability--none.

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

 

[StructuralEnginerd]

After speaking with my potential business partner, he is expecting me to give my engineering opinion. I will be producing reports, but not all of the time. With this information, he thought I would not need Professional Liability Insurance, but I should get general liability insurance in the case that I damage property while inspecting.

With this type of scenario, do you agree with the above about my insurance needs?

 

[zdas04]

This is a joke, right? There have been 23 posts, mostly from people who have shelled out the thousands of dollars for PL insurance because we think it is the right risk/reward mix for us, and then you want an endorsement for the opposite position. Are you really that needy? If your mind is made up, why do you need us? If you are still trying to get validation call your mother.

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,

Your post about the LLC is pretty much the reason why I chose to be a sole proprietor rather than an LLC. I had a nightmare of a time dealing with states and corporations in the past and didn't want to go in that direction in the future. Plus some states I deal will allow sole proprietors to file their COA free. I also figured that any skillful lawyer would pierce the corporate shield if needed so why bother.

StructuralE

Whether or not you are giving an report with your opinion or not you could still be found at fault if something goes wrong. I did a fire escape evaluation the other day. I provided a letter (in your case a report) of my opinion of the condition of the fire escape gave a set of repairs needed. If something happens to the fire escape within the next few years I would more than likely be sued.

 

[TehMightyEngineer]

Structural, you should be speaking to a lawyer about this, not a business partner.

Maine EIT, Civil/Structural.

 

[SLTA]

So. This is the majority of the work I do.

1. I have insurance because, to be blunt, I think it's just stupid not to. What happens when the report turns into a repair detail, and they sue you over something? Yes, insurance costs some money, but I live in a state where anyone touching any part of a project can be found liable for the entire amount. I am set up as an S-Corp to keep everything separate, but I just don't want that added stress. ASCE has some good deals on insurance but I found a local firm that was cheaper for more coverage.
2. I also highly recommend always writing a report. That way, the owner can never come back and say "but Structural said 50" when you actually said 15 and something fell apart.
3. Always, always, get a signed written contract. You're WAY less likely to get paid without one, especially if people don't like what you've said.
4. Find a good local construction lawyer and get advice on setting up your company, using a contract, getting insurance, and being there to write letters for you when needed.

I've found more direct references come from realtors, not the inspectors themselves, if you're looking to seriously do structural inspections. 95% of my contracted clients are the buyers or sellers, referred by realtors or inspectors. Good luck.

Please remember: we're not all guys!

 

[TehMightyEngineer]

95% of my contracted clients are the buyers or sellers, referred by realtors or inspectors. Good luck.

This is 100% true, my boss gets 95% of his work because banks or realtors referred the buyer or seller to our company.

Maine EIT, Civil/Structural.

 

[wannabeSE]

I think it is important to have insurance to protect the client as well as the engineer. What happens to the client when there is a legitimate claim and the engineer/ engineering firm has no assets or insurance? Having insurance just seems like the right thing to do.

 

[brandonbw]

We are paying a little over $2k/year for professional and general insurance. Why not get a quote to see how much it would be with some general numbers? I was told its common to go naked for the first year or so. Because once you get insurance you are now a larger target. How many jobs does it take to pay off the insurance in a year? How much side money are you looking to make? I would get it for certain types of work asap, like an inspection person. Home inspectors don't seem to be liable for anything. Ours was somewhat useless. But I would expect a structural inspector to be used in the event of real issues with a home.

B+W Engineering and Design | Los Angeles Civil Engineer and Structural Engineer

http://bwengr.com

 

[drawoh]

brandonbw,

Most home inspectors I know pay serious money for insurance. My home inspector, a Certified Engineering Technologist was sued. He advised a client to empty an old fuel tank and remove it from their basement. The people who removed it did not empty it, and I guess they dropped it.

He won the court case. Does insurance pay for the lawyers in a case like this?

--
JHG

 

[SteelPE]

If it was $2k for insurance I'm sure there wouldn't be a question however, my insurance runs much much higher than that. I imagine it has to do with the type of work being done where you are a civil and I am a structural which is in line with the OP.

 

[brandonbw]

Believe it or not we checked the box on structural engineering. We are maxed out too at $2mil. Maybe our USAA, was able to make an account but never in the military, discount is more than I thought it was. We are using Hartford. Deductible isn't the highest either. We did shop around and got wildly varying quotes. I guess if we were bringing in millions/year this would change things. I have no problem with that.

I don't know how insurance is finally handled as we haven't had to use it yet. I know one company that has been around over 50 years and they were in lawsuits 3 times, none of them their fault. Most of that time they were doing surveying, structural and grading.

I haven't heard of a story with someone going naked and getting sued. I wouldn't be able to sleep thinking about that.

B+W Engineering and Design | Los Angeles Civil Engineer and Structural Engineer

http://bwengr.com