This is definitely a question for the lawyers.  If your contract specifically excludes third-party liability, or you have an adequate hold-harmless clause, you may be safe.  However, I have found that residential homeowners tend to be emotional about these issues and rational cost analysis does not factor into the equation.  The cost of defending yourself before a third party homeowner may be greater than the cost of the repair.  As a professional, your designs are held to a public standard and you may have liability beyond your contract.  This is something you need to discuss with you lawyer.

Interesting question!  You should check with a lawyer, obviously, but I'll give you my take on seeing similar in the past...

You're contract is with the builder.  The Owner's contract is with the builder.  You and the owner have no contract, other than an implied contract of code compliance.  If it complies with code, then you probably don't have an issue with the owner; however, if the owner sues the contractor, he can then bring you into the mix because of his specific reliance on your competence to solve the issue and his contractual relationship with you.  You would become a third-party defendant.

Assuming you designed something, the builder built it as you designed, it complies with code, and it still doesn't work.... where do you stand?  Well, the issue then becomes one of a standard of care.  Remember, as engineers we are not required to be perfect.  We are required only to use "that degree of ordinary skill and care used by other engineers practicing under similar conditions in the same locale".  Further, the standard of care is not determined by what another engineer "would do" in the same or similar situation, but what other engineers "have done" in the same or similar situation.

You might consider changing your terms and conditions to limit your liability to the amount of your fee, not the value of the design as you have implied.  There can be a big difference, usually in the wrong direction for you. You should have an indemnification clause and a standard of care clause in your contract.  If you don't have them, put them in, along with a clause on the ownership of the documents you produce...don't give up ownership unless you absolutely have to do so.

Well, I once bought a used car. The former owner had it repaired at a garage and he dropped the air intake plenum and repaired it with JB Weld. (This was unknown to me).

Did I have any recourse against the garage for doing a shoddy repair on my car even though I didn't own it at the time? I sure couldn't convince myself that I had much of a case, and the garage owner was pretty convinced that he didn't have any liability for it.

Unfortunately, (as mentioned above) homeowners tend to be more empowered than car owners, so it can get messy.

Cedar Bluff Engineering
http://cedarbluffengineering.webs.com

You can't exclude third party liability on a contract, because 3rd parties haven't sign to the contract and aren't a party to it.

3rd party liability will fall under tort law, which basically says that you are liable if you had a duty to care, you breached that duty, and the breach of that duty cause damage.

If you exercise sound engineering judgement and can back it up by textbook or other references (or from your experienced gained by doing similiar repairs), I don't think they will have a case.

Cedar Bluff Engineering
http://cedarbluffengineering.webs.com

You can exclude third party reliance in the limitations sections of your reports (as per our lawyer).  That way, by accepting the report, the third party also acknowledges and accepts the limitations.  This is very common in Phase I Environmental Site Assessments where the property owner has the assessment performed by request of a bank during a property transaction.  Typically the bank then wants a reliance letter granting reliance to everyone and their brother in perpetuity.  That's why environmental E&O insurance is often high.  But even including properly reviewed legal language does not keep you out of law suits.  As my attorney told me, anyone can sue anyone else for anything - it then becomes you problem proving they have no basis to sue.

So we had a case near Seattle where a engineer designed the base for a tower crane. It was sloppy engineering, the tower crane fell on an apartment complex and killed a guy who was watching tv and probably drinking a beer after a day at the office.

There's no way the engineer could write a contract to say that he wasn't liable for the injury that was caused by his defective. The 3rd party had nothing to do with the contract between the engineer and the client, and any clause excluding liability wouldn't stand up in court.

Cedar Bluff Engineering
http://cedarbluffengineering.webs.com

Third party liability is usually handled by indemnification and secondarily as a limitation of liability statement.

And the six years of exposure that you legally have as the designer.

Mike McCann
MMC Engineering
Motto:  KISS
Motivation:  Don't ask

Mike,
10 years here...just went down from 15!!

Ron