From time to time, engineers employed in private practice, construction, industry, government, and education have questions relating to their potential professional liability exposure.
The following questions and answers are intended to address some of these issues prepared by NSPE Deputy Executive Director and General Counsel Arthur Schwartz:
Can an employed engineer be sued separate and apart from the engineer's employer being sued?
As a general rule, when an engineer negligently performs services on behalf of his firm or employer, the individual allegedly suffering damage from the engineer's negligent performance may sue the company and/or the individual engineer. Typically, in the case of an engineering firm in private practice, the firm's professional liability insurance carrier will respond to claims against any past or present principal, partner, director, officer, or employee acting within the scope of their duties. In some cases, the firm or company may choose to self insure and agree to indemnify its employees for negligent acts, errors, or omissions performed within the scope of their duties. In all cases, the issue of who signs or seals the drawings, plans, or specifications is not necessarily relevant to whether the engineer and/or the firm will be found negligent. Instead, the courts generally look to whether the engineer(s) owed a duty to the individual(s) suffering damages and whether the engineer(s) breached the duty, causing all or a portion of the damages.
Will there by sufficient insurance coverage to protect the individual employed engineer?
Assuming the firm or company maintains a manageable professional liability insurance policy deductible and reasonably high limits of coverage, the firm's professional liability insurance policy should provide adequate professional liability protection for the firm, principals, employees, etc. In the event the firm anticipates a potentially greater professional liability exposure due to the nature of its work and other risk management considerations, the firm should consider increasing its maximum limits of coverage. As pointed out earlier, individual engineers employed by a firm or company in private practice are generally covered under standard professional liability insurance policy language.
Is it a good idea for an employed engineer to purchase his or her own professional liability insurance policy?
Individual professional liability insurance policies for employees have not been the custom or practice within the engineering profession. Individual employees who believe their unique services (e.g., "cutting edge" environmental remediation services) increase their firm's liability exposure may want to discuss these issues with their employer; if warranted, the employer may want to explore these issues with its insurance broker and carrier.
What is the likelihood that an individual will be sued apart from the employer?
It is possible, but extremely improbable, that an individual employee would be "sued outside of the corporate liability insurance umbrella," which would mean that the individual employee would be sued but his employer would not, assuming the individual engineer was acting within the scope of his employment. As a practical matter, a plaintiff's attorney will name (in fact, the attorney has a professional obligation to name) each and every party that is potentially liable to the plaintiff. Under those conditions, it is hard to imagine a plaintiff naming the employee and not also naming the employer—the party that is legally responsible for managing that employee. Assuming both are named in the suit, the professional liability insurance carrier would provide coverage for both the firm and the individual employed engineer.
What happens if (1) an engineering employer goes out of business, (2) an engineering employer discontinues its professional liability insurance coverage, or (3) an employee leaves the firm and is later named in a law suit relating to a project with the former employer?
When an engineering employer firm goes out of business or discontinues professional liability insurance coverage, this situation could create potential liability exposure for the individual employed engineer, particularly where the employed engineer's name and engineering seal are on engineering documents prepared on behalf of the firm. In exchange for the payment of an annual premium, some professional liability insurance carriers offer "retired" or "retroactive" insurance coverage that may provide protection for the former employee for professional liability claims. Please note however that this coverage is not automatic and must be separately purchased by the individual engineer.
In the case of former employees, most professional liability insurance policies cover the work performed by past and present employed engineers within the scope of their employment for the insured employer. However, as with the situation described above, the professional liability insurance coverage must be in effect at the time that the professional liability claim is made. If the employee's former employer is no longer in business and/or no longer carries professional liability insurance, this situation can also create potential liability exposure for the individual employed engineer.
What about individuals employed in government, industry, or education?
As a general rule, engineers employed by federal, state, or local agencies (including engineers teaching at state colleges or universities) and performing engineering services within the scope of their employment are generally immune from suit under the common law legal doctrine of "sovereign immunity" (i.e., "the king can do no wrong"). Few engineers employed in large industry have perceived a significant professional liability risk exposure. Many large industrial employers either self-insure, have professional and products liability insurance coverage with very high (or layered limits), or as a matter of corporate policy, agree to indemnify and hold harmless their employees for negligent actions that arise within the scope of their employment. Some employed engineers, including those who work for mid-sized or smaller industrial employers or for construction contractors have traditionally found it difficult to obtain professional liability insurance and therefore should explore a more comprehensive indemnification/hold-harmless agreement with their employers.
However, the climate may be changing largely due to corporate restructuring which, for example, recently occurred in the power generation field. In this regard, there has been a growing interest in professional liability insurance among some electrical engineers who have been terminated from employment and afterwards brought back by their former employers as "independent contractors."
Any final advice?
As the practice of engineering evolves and the role of the employed engineer changes, professional engineers and their employers must continue to be aware of their liability exposure as employed engineers.