INNOVATION May-June 2012

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insurance to protect you in the event of a claim arising. The insurance not only provides for an indemnity in the event of liability arising out of the services you provide, but also defence coverage to defend you against claims which otherwise could impose punitive legal costs on you. So it is very important to carry professional liability insurance at some level and to report incidents or claims to your insurer early on so as to not prejudice the insurer’s ability to assist you and defend your interests. At the end of the day it is the available professional liability insurance which in 99 cases out of 100 represents your limit of liability to your client or third parties who might choose to bring a claim against you. So your professional liability looks after both indemnifying you and defending you, so you can get on with business. Limit of Liability sophisticated parties will be enforced by our courts. Indeed, courts will enforce clauses which preclude or limit liability on the part of consultants even if they are negligent. A clause of this nature is, of course, not widely acceptable, but there are less harsh clauses which are, and should, in one form or the other, find their way into your contracts. Limiting one’s liability to a stipulated dollar amount, to fees earned or to the available limits of insurance, are common features found in consulting contracts today limiting the consultant’s liability to a reasonable amount. And it is not unusual to have the consultant’s liability limited to a specified length of time, shorter than that found in the limitation of actions legislation. Such clauses are permissible and enforceable. Limitation Period The length of time during which an engineer can remain liable for their services improperly performed is a bit of a mystery. However, a proper understanding of the current Limitation of Actions Act in British Columbia would indicate that an engineer is exposed to liability for the following time periods: 1 . To a claim for pure economic loss, that is where there has been no physical injury to tangible property or bodily injury, for six years from the date the injured party becomes aware that you might be responsible for their loss. Limitation of liability clauses found in contracts between two commercially

Keeping Out of Trouble John Singleton QC

responsibilities. We are long past the day when a simple offer to provide services in return for payment is an acceptable way to carry on the practice of engineering. One must become familiar with and establish a firm practice of using proper written contracts. Securing Payment Most engineers reading this article have probably at one time or another run into payment problems with their client. And most of those will probably recall in many instances it was unclear when the client had to pay, whether services had to continue to be provided notwithstanding non-payment, and whether interest was due on overdue accounts. As fee disputes can quite frequently lead to counterclaims by a client who is faced with a demand for payment, it is critically important to have clear payment terms and conditions agreed to before services are provided. So your contract should include a clear statement of the client’s obligation— that is, when the client has to pay, when interest becomes due and at what rate. A properly drafted payment provision will also stipulate that there is no obligation on your part to continue to provide services if accounts are overdue and a further provision foreclosing the client from withholding payment which is otherwise due pending resolution of a dispute which has arisen between you and your client. Insurance Equally important to a proper contract is having in place professional liability

Over the course of my career defending design professionals, I have had to repeat at least annually some very basic lessons on how to keep out of trouble. It is not that those who have heard the message before are not listening (although some may not be), only that as new individuals enter the profession, there are lessons they have not learned before, or, at least they have not had the unpleasant experience of getting into trouble and learning the lessons the hard way. So, I thought it might be worthwhile to once again review the basic risk management tools I have found to be most useful and helpful in avoiding, as far as possible, the unpleasant experience of ending up in a court room. Proper Contract Contracts can be written or oral, but are much better if they are written and signed by both parties. Otherwise, one is leaving it to chance or a judge to have the contract written for you. As I have said in a recent article, this is not good practice. There are standard form contracts for use by engineers, both in short form and long form. They are well-written, risk management tools and, when used, can be one of the more important assets of an engineer’s practice. For those of you who feel your writing skills are above and beyond those of the authors of the standard forms, the key terms you will want to include in your manuscript form, in clear and understandable terms, are the scope of your services, the payment terms and conditions, a limitation of liability clause, and a clear outline of your client’s

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