When Less Is More: The pitfalls of saying too much in professional contracts

By Eric Cheng (White Plains, NY) on November 13, 2015Posted in Architects & Engineers, Design Professionals, Professional Liability

Design and other professionals often incorporate their practices in an effort to avoid individual liability. They also add well-crafted limitations of liability and indemnification clauses in their form services contracts to avoid responsibility for problems that arise in the execution of the plans. These strategies are especially important for practitioners in jurisdictions where a design professional may be exposed to liability disproportionate to the limited scope of services, such as where codefendants have no insurance coverage or are underinsured. It is also common for plaintiffs to sue the professional individually to attempt to circumvent favorable clauses in the professional corporation’s standard contract for services.

Certain states frown on attempts by a professional to avoid personal liability. In New York, for example, each shareholder, employee or agent of a professional services corporation is statutorily personally and fully liable and accountable for any negligent or wrongful act or misconduct committed by him/her or by any person under his/her direct supervision and control while rendering professional services on behalf of such corporation (N.Y. BSC. LAW § 1505). Other states, such as Louisiana, however, allow design professionals to avoid individual liability by providing their professional services as a corporation. Nevertheless, language in the drawings and plans may still expose the practitioners to individual liability.

A Case in Point
The background of Harbor v. David Shoring, Inc., La: Court of Appeals, 4th Circuit 2015, is straightforward: the owner hired the defendant contractor to elevate his home. The engineering firm prepared elevation plans. The plaintiff was dissatisfied with the outcome and sued the contractor, the engineering firm and the individual engineer. The engineer moved to dismiss the claims against him individually and the trial court granted the motion.

On appeal, however, the award of summary judgment to the individual was reversed by the Court of Appeals of Louisiana, which found that a question of fact was created by the engineer’s statement in the plans that “I have prepared and reviewed these plans for this specific location and have approved them as a professional engineer and bear the liability that comes with that approval.”

Although the Court did not explicitly indicate which part of the statement created an issue of fact, it is logical to assume that the Court focused on the second part of the statement. After all, engineers’ stamps bear the name and license number of individual engineers and a stamp on the plans represents that the engineer prepared and reviewed the plans and approved them. It would be counterintuitive for the Court to hold that simply reiterating what the stamp denotes is sufficient to trigger individual liability. We therefore believe that it was the extra tail that the engineer added, i.e., that he “bear[s] the liability that comes with that approval,” that caused the Court to conclude the engineer assumed individual liability despite the protections provided by his execution of the contract in his corporate capacity.

Takeaway
As a matter of good practice in preparing plans and drawings, non-descriptive superfluous language should be avoided. Such language, as is used in Harbor, may void carefully prepared limitations in a services contract. There are certainly beneficial disclaimers and other exculpatory language that can apply on different occasions. In this instance, however, the entire statement in question created no benefit for the engineer and actually added the possibility of liability, thereby nullifying the potential benefit of his carefully chosen business format.

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