Lessons from a Diner: Up Front Costs can Save You Money in your Engineering Practice (law note)

greekgrilled.jpgI happen to frequent a place in my hometown called Elmo’s Diner.  A lot.  As in, many of the servers know me by name.  The food is good, yes.  The selection is great.  But there is a much more important reason that I go there over and over again– the service.  Elmo’s seems to always have enough staff on hand, and they also work together to make sure your wait is never very long.

There are some other places in town that skimp on hiring waiters and waitresses.  I guess they figure, the fewer they have working at any one time, the less money they have to pay out.  Even though, of course, waiter minimum wage is much lower than regular minimum wage due to the tip factor.  But some of these other places (who shall remain unnamed) really do seem to have the mindset that they will save money by not hiring enough staff for the number of customers.

Maybe that thinking works for them- in the short run.  Do you know how much money I spend at Elmo’s Diner?  Let’s just put it this way– I really should invest in direct deposit with them!  These other places?  I forget, and go to them every now and again, thinking, it can’t be all bad, right?  And almost always, I remember why I do NOT go to them.

Now, back to construction.  Many professional service firms are like the unmentionable restaurants above– they skimp on things that “cost money”.  Notably, in two areas (1) professional liability insurance (errors & omissions coverage), and (2) getting legal assistance at the beginning of a project.  These architects & engineers are making the same short-sighted mistake, thinking they are “saving money.”  And yet, very often, in the long run they are costing themselves money– in contract disputes, legal wrangling at project end, or in paying out of pocket for large claims.

You should have E&O insurance if you are a working professional.  Period.  You should also have your contracts and proposals reviewed by a lawyer.  Preferably, before any major new undertaking.  The up front costs are small, but the impact can be huge.  Just ask anyone at Elmo’s.

Your turn.  Are there places that you frequent because of their superior service?  Do the extra costs seem to pay for themselves over time?  Share below. 

Is your design professional construction contract too friendly? (law note)

not friendlyMy husband often travels the back roads between Chapel Hill and Fuquay Varina to visit friends.  En route (a circuitous route that goes past Sharon Harris Nuclear Power Plant, among other places), he passes by the “Friendly Grocery”.  For those who haven’t had the pleasure, here is a photo of the side of the building in all its glory.

In case you cannot read the list of forbidden activities, I’m re-printed them here (complete with spelling error):

not friendly sign

I’m not sure which is the “friendly” part of that sign.  In fact, the sign seems to be the antithesis of friendly.

What does this have to do with your construction contracts?  Sometimes, in an effort to please the client and/or secure the project, architects and engineers have the habit of being too friendly in their contract language.  That is, you make promises or proposals that may promise too much of a good thing for the client.  This can cause big problems.  Bigger than being towed away from a rural grocery store in the middle of nowhere.  You could be putting your insurance coverage at risk.

Have you ever promised to use “best efforts” in your design or plans?  Promised to design to a specific LEED standard?  Guaranteed 100% satisfaction?  You might be putting your errors & omission coverage at issue.  By warrantying or guaranteeing something, you are assuming a level of liability well beyond the standard of care required by law.  By law, you only need to conform to the standard of care, and your insurance will only provide coverage up to that standard of care.  In other words, if you make guarantees or promise “best efforts,” you are contracting to something that will *not* be insured.  If something goes wrong, you will be without the benefit of your professional liability coverage.

Instead, make sure that your contracts, and proposals, are not too friendly to the client.  Sure, agree to work in accordance with the standard of care of professional architects/engineers.   But don’t make guarantees, or promise “best” efforts.  In fact, you might want to educate your client on why you cannot make such guarantees, and why anyone who does (i.e., your competition) is putting their insurance coverage at risk.  Owners want and need you to stay within the bounds of your coverage.  You need to, also.  Maybe the owner of the Friendly Grocery was on to something there.

Your turn.  Have you ever used language that jeopardized your insurance protection?  Uncertain if you have?  Drop me a line and we can talk.

Photo (c) Melissa Brumback  Creative Commons License

Adding an “Additional Insured” in the Professional Services Agreement: an exercise in futility! (law note)

As an architect or engineer,  you may be asked to sign a contract that has a requirement of adding the Owner (or Contractor, in a design-build project) to your own insurance as an “additional insured”.  This is usually a fall out of the fact that the Owner is treating you like a contractor and using “stock” contract language.  It is not appropriate, nor sometimes even possible, to add the Owner to your professional liability policy.

This is beacuse professional liability insurance only provides coverage for “professional services”.  That is, if it is even possible to buy such coverage, it won’t work to avoid any risks the Owner is seeking to avoid, because the Owner is not providing licensed architectural or engineering services on the Project.

In fact, because of the way professional liability policies are generally written, naming the project Owner as an additional insured essentially voids any coverage for the owner for your Firm’s design errors & omissions.

What should you do with a stubborn Owner who insists he wants to be an additional insured under your E&O policy?  Explain the facts to him, and point out he is risking voiding coverage all together.  Tell him to call me, or point out this post to him.  Also, several insurance brokers, agents, and companies have simple one or two page information sheets that you can provide to the Owner to help with his education.

Remember, having an “Additional Insured” in an Errors & Omissions policy is a true exercise in futility.  It may not be what the Owner wants to hear, but such is life!not want to hear


Question time:  have you ever been asked to add an Owner to your E&O insurance?  How did you handle it?  Share in the comments section, below. 

And if you haven’t already, be sure to download your free white paper on the 7 Critical Mistakes that Architects & Engineers make– it’s in the box on the top right hand side of the blog.


Photo credit.

You Don’t Need to be Goliath to Get Sued for Professional Malpractice (infographic)

Think most business lawsuits effect the “big guys”?  Not according to the folks at Bolt Insuarnce.  According to them,  57% of lawsuits effect companies making less than $1 million in revenue. Did you know that 1 in 3 small business owners are sued or threatened with a law suit?

  • $100 billion: How much small businesses spend on legal action in the U.S. annually
  • 25%: Number of harassment claims has risen since 2006
  • $404 Million: Price to settle discrimination related law suits each year
  • 104 Billion: Annual cost to settle tort liability

Check out the neat infographic below to learn Five Ways to Protect Your Firm. 


Courting Disaster: Small Business Lawsuits Infographic


What about you, blog readers? Have YOU had the occasion to be threatened with a lawsuit?  Learn any good lessons to share?  If so, drop a note below.

Infograph: BOLT Insurance

The police are at the door! Service of the construction lawsuit on your company (Law & Order: Hard Hat files Part 2)

sheriff carThe police?  Yes, that’s right.  If you are sued, at least in North Carolina, you may find Mr. Policeman (or Ms. Policewoman) at your door.  There are several ways that you may find out you or your company are being sued, but undoubtedly seeing the Sheriff at the door is the most nerve-racking.  Heck, we have Sheriffs in our law office occasionally to serve papers, and the sight never fails to startle me.  So be forewarned—the first you find out that there is a lawsuit may be when Johnny Law himself comes knocking.

While unnerving (as it is often meant to be by the party suing you), rest assured that all the Sheriff will be doing is identifying you and handing you papers showing you’ve been sued.  The Sheriff doesn’t actually have to hand you the papers personally- in fact, depending on if and how you are incorporated, he may be handing them to your spouse, another adult that resides in your house, your business partner, or an officer or manager of your professional association.  While the Sheriff is not supposed to leave papers with a mere employee, that can and does happen as well.

The Sheriff is not the only way you can be sued.  You can also get a certified mail package—you know, the type that requires you to go sign for it at the post office.  Or, you may get a Fed Ex package.  If you are being sued in federal court, or you know the lawsuit is coming, you may not get anything, as it may all come to your lawyer instead.

What should you do if you do get the lawsuit (called the Complaint)?  First, run, do not walk, to your insurance carrier and/or lawyer.  Do not pass go.  This should be the first thing you do.  If you don’t have a lawyer, but you have insurance, your agent should be able to help you report the claim, and a lawyer will be assigned to you by the insurance company.  If you have a lawyer, you can report to him/her, and ask the lawyer to make the claim on your behalf to your insurance company.

Remember, however, that you need to report it as soon as you can.  In state actions in North Carolina, you have 30 days from receipt to respond.  In federal actions, you have 20 days.  There are certain rules concerning weekends and governmental holidays that change these deadlines at times.  But the important thing to remember is that you must respond, timely, or you can end up with a judgment entered against you in default.  So, when you report the lawsuit, the first thing your agent or lawyer will want to know is the date you (or someone connected with you) first received the Complaint.

If you report the claim and do not hear back?  Follow up.  Never assume that an email went through or that the person you called isn’t on vacation or in the hospital.  Make sure that you speak with your agent and/or lawyer personally and that they know when you were served.

Questions? Comments?  Have you ever been sued?  Do you now know something you wish you knew then?  Drop me a line or comment below.

Next week in our series:  You have the right to an attorney! (but one will not be appointed for your construction lawsuit)

Photo (c) freefoto.com


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