Limiting Liability

Rumors are abuzz that someone (suspected to be an architect-engineer professional liability insurance carrier) has come up with a great new idea for architects and engineers: limiting liability by contract. The concept is simple: the architect or engineer simply provides by contract that his professional liability is limited to a certain dollar amount, stated either in a fixed dollar amount or in relationship to the amount of his fee. From the architect-engineer’s standpoint this devise is intended to place an upper limit upon the dollar liability he would suffer in the event of error or omission, other negligence or contract breach by him.

On the surface the idea has much appeal. The notion of limiting the dollar extent to which a professional or his malpractice insurance carrier may be exposed certainly serves their best-interests. There are, however, other considerations.

First is the law which now permits third persons damaged on account of a design professional’s malpractice to sue the architect or engineer directly. In that event, the contractual limitation on damages provided for in the agreement between the architect/engineer and his client would not apply since the third party would not be a party to or bound by that contract.

More importantly is the consideration that clients may be reluctant to engage architects or engineers who seek to limit the extent of their (OR liability. Why should a potential client willing to fairly compensate a design professional engage someone who will not take full responsibility for the quality of his work? If the design professional blunders, there is a good possibility that the amount of damages his client may suffer will be many times either the amount of the design fee or any arbitrarily fixed dollar limitation which the design professional might select.

On the other hand, there may be a mid-point approach based upon the economics involved. The client and design professional might, in consideration of a reduced fee arrangement, agree to some sharing of the architect or engineer’s exposure. Otherwise, the client might agree to bearing some of the additional malpractice insurance premium expense to be incurred by the designer for the particular project.

Any attempt to contractually limit liability should be carefully studied. Full consideration should be given to the legal, practical, insurance and economic aspects involved. The design professional seeking to limit the dollar extent of his liability should be fully prepared to answer the question: “Do you lack confidence in your ability to competently perform the services for which you are to be paid.”

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