Liability

Professional liability

Professional liability refers to the legal responsibility that engineers bear for their professional work. Understanding the various forms of liability is essential for managing risk and maintaining professional standards.

Negligence

Negligence is an action, willful or unwillful, taken without proper care or consideration for safety, resulting in damages to property or injury to persons.

“Proper care” is a subjective term, but in general it is the diligence that would be exercised by a reasonably prudent person. For professionals, this standard is measured against what other competent professionals would do in similar circumstances.

Negligence of a design professional (e.g., an engineer or architect) is the absence of a standard of care (i.e., customary and normal care and attention) that would have been provided by other engineers. It is highly subjective.

Damages sustained by a negligent act are recoverable in a tort action. If the plaintiff is partially at fault (as in the case of comparative negligence), the defendant will be liable only for the portion of the damage caused by the defendant.

Misrepresentation and fraud

Misrepresentation is an intentionally false statement known to be false at the time it is made. Misrepresentation that does not result in a contract is a tort. When a contract is involved, misrepresentation can be a breach of that contract (i.e., fraud).

Punitive damages are available if the breaching party was fraudulent in obtaining the contract. In addition, the injured party has the right to void (nullify) the contract entirely.

Unfortunately, it is extremely difficult to prove compensatory fraud (i.e., fraud for which damages are available). Proving fraud requires showing:

1. A reckless or intentional misstatement of a material fact
2. An intention to deceive
3. It resulted in misleading the innocent party to contract
4. It was to the innocent party’s detriment

##. Torts A tort is a civil wrong committed by one person causing damage to another person or person’s property, emotional well-being, or reputation. It is a breach of the rights of an individual to be secure in person or property.

The difference between a civil tort (lawsuit) and a criminal lawsuit is the alleged injured party. A crime is a wrong against society. A criminal lawsuit is brought by the state against a defendant. A tort is a wrong against an individual, and the lawsuit is brought by that individual.

Tort actions

In order to correct the wrong, a civil lawsuit (tort action or civil complaint) is brought by the alleged injured party (the plaintiff) against the defendant.

To be a valid tort action (i.e., lawsuit), there must have been injury (i.e., damage). Generally, there will be no contract between the two parties, so the tort action cannot claim a breach of contract.

Overlap between tort and contract

It is possible for an injury to be both a breach of contract and a tort. Suppose an owner has an agreement with a contractor to construct a building, and the contract requires the contractor to comply with all state and federal safety regulations. If the owner is subsequently injured on a stairway because there was no guardrail, the injury could be recoverable both as a tort and as a breach of contract.

If a third party unrelated to the contract was injured, however, that party could recover only through a tort action.

Purpose of tort law

Tort law is concerned with compensation for the injury, not punishment. Therefore, tort awards usually consist of general, compensatory, and special damages and rarely include punitive and exemplary damages.

Strict liability in tort

Strict liability in tort means that the injured party wins if the injury can be proven. It is not necessary to prove:

• Negligence
• Breach of explicit or implicit warranty
• The existence of a contract (privity of contract)

Strict liability in tort is most commonly encountered in product liability cases. A defect in a product, regardless of how the defect got there, is sufficient to create strict liability in tort.

Requirements for strict liability

Case law surrounding defective products has developed and refined the following requirements for winning a strict liability in tort case. The following points must be proved:

1. The product was defective in manufacture, design, labeling, and so on
2. The product was defective when used
3. The defect rendered the product unreasonably dangerous
4. The defect caused the injury
5. The specific use of the product that caused the damage was reasonably foreseeable

Manufacturing and design liability

Distinction Between design professionals and manufacturers

Case law makes a distinction between design professionals (architects, structural engineers, building designers, etc.) and manufacturers of consumer products.

Design professionals are generally consultants whose primary product is a design service sold to sophisticated clients.

Consumer product manufacturers produce specific product lines sold through wholesalers and retailers to the unsophisticated public.

Standard for design professionals

The law treats design professionals favorably. Such professionals are expected to meet a standard of care and skill that can be measured by comparison with the conduct of other professionals.

However, professionals are not expected to be infallible. In the absence of a contract provision to the contrary, design professionals are not held to be guarantors of their work in the strict sense of legal liability.

Damages incurred due to design errors are recoverable through tort actions, but proving a breach of contract requires showing negligence (i.e., not meeting the standard of care).

Standard for manufacturers

On the other hand, the law is much stricter with consumer product manufacturers, and perfection is (essentially) expected of them. They are held to the standard of strict liability in tort without regard to negligence.

A manufacturer is held liable for all phases of the design and manufacturing of a product being marketed to the public.

The reason for this distinction is that the public is not considered to be as sophisticated as a client who contracts with a design professional for building plans.

Liability of individual engineers

Although all defectively designed products can be traced back to a design engineer or team, only the manufacturing company is usually held liable for injury caused by the product.

This is more a matter of economics than justice:

• The company has liability insurance
• The product design engineer (who is merely an employee of the company) probably does not

Unless the product design or manufacturing process is intentionally defective, or unless the defect is known in advance and covered up, the product design engineer will rarely be punished by the courts.

Note: The engineer can expect to be discharged from the company. However, for strategic reasons, this discharge probably will not occur until after the company loses the case.

Damages

An injured party can sue for damages as well as for specific performance. Damages are the award made by the court for losses incurred by the injured party.

Types of Damages

General or compensatory damages are awarded to make up for the injury that was sustained. These damages are intended to restore the injured party to the position they would have been in had the injury not occurred.

Special damages are awarded for the direct financial loss due to the breach of contract. These are specific, quantifiable losses such as:

• Lost profits
• Cost of replacement or repair
• Medical expenses
• Lost wages

Nominal damages are awarded when responsibility has been established but the injury is so slight as to be inconsequential. These damages (often $1) acknowledge that a wrong occurred even though no significant harm resulted.

Liquidated damages are amounts that are specified in the contract document itself for nonperformance. These are predetermined damages agreed upon by the parties, typically used when actual damages would be difficult to calculate.

Punitive or exemplary damages are awarded, usually in tort and fraud cases, to punish and make an example of the defendant (i.e., to deter others from doing the same thing). These damages go beyond compensation and are intended to punish particularly egregious conduct.

Consequential damages provide compensation for indirect losses incurred by the injured party but not directly related to the contract. Examples include:

• Lost business opportunities
• Damage to reputation
• Losses suffered by third parties

Many contracts include clauses limiting or excluding consequential damages.

Insurance

Errors and omissions insurance

Most design firms and many independent design professionals carry errors and omissions insurance (also called professional liability insurance) to protect them from claims due to their mistakes.

This insurance covers:

• Defense costs for lawsuits
• Settlements and judgments
• Claims arising from professional services

Cost considerations

Such policies are costly, and for that reason, some professionals choose to “go bare” (i.e., practice without insurance).

Going bare appears foolish at first glance, but there is a perverted logic behind the strategy:

• One-person consulting firms (and perhaps, firms that are not profitable) are “judgment-proof”
• Without insurance or other assets, these firms would be unable to pay any large judgments against them
• When damage victims (and their lawyers) find this out in advance, they know that judgments will be uncollectable
• So the lawsuit often never makes its way to trial

Limitations of insurance

Policies protect against inadvertent mistakes only, not against willful, knowing, or conscious efforts to defraud or deceive. Insurance will not cover:

• Intentional wrongdoing
• Criminal acts
• Fraud
• Punitive damages (in most jurisdictions)

Risk management

Beyond insurance, engineers should practice risk management through:

• Clear contract terms
• Thorough documentation
• Quality control procedures
• Continuing education
• Peer review of work

Conclusion

The legal aspects of engineering practice, particularly contracts and liability, form an essential foundation for professional success. Engineers who understand these principles can:

1. Structure effective agreements that clearly define scope, compensation, and responsibilities
2. Manage risk through appropriate contract provisions and insurance
3. Maintain professional standards that meet the standard of care
4. Protect clients and the public while also protecting themselves
5. Navigate disputes when they arise