NSPE's Gateway to Private Practice June 2007 

Professional Liability/Risk Management Brief — Contractual Indemnity
Richard B. Garber, Vice President A/E/C Risk Management Services, Victor O. Schinnerer & Company, Inc.

Contractual Indemnity

It’s a term that is often misunderstood and misused. While the concept of indemnity is a basic element of United States common law, the contractual obligation of indemnity is a commercial commitment that has crept into professional service contracts.

Common Law and Contractual Indemnity

Indemnification” is the restoration of a “victim” for loss or damage by means of a payment, repair, or restitution. It’s a common law obligation by one causing a loss to make restitution. Indemnification, however, can be more than the restoration of loss. A contractual obligation can commit one party to indemnify the other upon the occurrence of a loss—even if the loss is not the indemnifying party’s fault. In other words, the indemnity obligation becomes a mechanism to shift loss, regardless of how that loss was caused.

Extending Risk Through Indemnity Provisions

Professional service firms are not obligated by law to guarantee their performance or the result of their services. They are only required to exercise reasonable care in providing services. If a client is harmed by the firm’s failure to meet its professional obligations to the client or a third party, the firm is responsible to indemnify for the resulting costs, losses, or damages.

Contractual indemnity obligations should be narrowly stated so that the benefits to the client and contingent risks to the design firm are clear. If the obligation addresses professional services, such clarity should allow the common law obligation to prevail.

Indemnifying or Defending a Client

There should be an understanding of the difference between indemnity against loss and indemnity against liability. Professional liability insurance—even with the broad coverage provided by CNA/Schinnerer—only covers a policyholder’s liability for failing to practice in accordance with the applicable standard of care. Remember, nothing in a contractual indemnity provision will either enlarge or reduce the coverage of the policy; the policy is a contract of coverage that stands alone.

Requiring Reciprocal Obligations

The law places responsibility to correct harm on the party that causes harm. If a client wants the design professional to indemnify the client for any cost, loss, or damage caused by the design professional (or those for whom the design professional is responsible), the converse should be negotiated. Professional service firms should require clients to indemnify them for any cost, loss, or damage caused by the client or others for whom the client is responsible.

The Search for Appropriate Language

Indemnity provisions can be extremely state-specific in the manner by which they transfer risk. Seeking the advice of local legal counsel for possible interpretation is prudent. One example of a possible contractual provision that is within the scope of the CNA/Schinnerer professional liability insurance coverage is in Schinnerer’s Terms and Conditions Review Guide, which can be found at www.PlanetAEC.com, and is as follows:

Client and Consultant each agree to indemnify and hold the other harmless, and their respective officers, employees, agents, and representatives from and against liability for all claims, losses, damages, and expenses, including reasonable attorneys’ fees, to the extent such claims, losses, damages, or expenses are caused by the indemnifying party’s negligent acts, errors, or omissions. In the event claims, losses, damages, or expenses are caused by the joint or concurrent negligence of the Client and Consultant, they shall be borne by each party in proportion to its negligence.

PEPP Celebrates 50th Anniversary with Gala Event

Please join us for the

PEPP 50th Anniversary Gala 
July 26
Denver Marriott City Center Hotel

Enjoy a black tie optional reception, dinner, awards presentation, and dancing as we celebrate 50 years of PEPP dedication to providing NSPE members benefits from standard contract documents, continuing education programs, politcal advocacy, professional liability products, networking, and more.  

Tickets price: $75, ala carte

Visit the NSPE Web site, and click on the "Denver" icon to register.

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NSPE, NCEES Ask For Opinions on NonTechnical Practice Exam

The National Council of Examiners for Engineering and Surveying is evaluating the feasibility of a nontechnical engineering exam that would focus on professional practice issues involved with offering services to the public. To help with this evaluation, NCEES is asking for your opinions by June 29.

NCEES points out that most disciplinary cases faced by state boards involve nontechnical issues. Furthermore, the engineering and surveying communities have faced criticism for focusing primarily on technical subject matter, both in education and licensing exams. While there is apparently a difference of opinion on the extent to which professional practice issues are addressed by the various disciplines in current PE and PS exams, there appears to be general agreement that the exams are heavily weighted to technical subjects. Furthermore, the current PE and PS exams have limited coverage of the professional practice issues that engineers and surveyors face when offering services to the public.

While there appears to be broad-based support for enhancing the professional practice examination content, several questions must be answered before moving ahead with this initiative. These include the feasibility of such an exam; the form and timing of the exam; how the exam should be incorporated in the existing licensing structure, the knowledge related to practice issues that all licensed engineers and surveyors should have; and when these competencies are attained in the licensing process.

The survey will attempt to answer many of these questions. Please remember that the survey's purpose is to determine the feasibility of this exam, not the actual exam content. Once the survey results have been analyzed, a "go - no go" decision will be made. If it is determined to move forward, additional surveys will be required to determine the exam content.

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NEW! NSPE offers Free Web Seminars

NSPE offers two free online courses - click and play or pass along to others.

  • Becoming a PE shares information on how to advance your career with this important designation and why you shouldn't wait any longer!

  • Changing the PE Paradigm includes discussion of the initiative to require engineering education beyond the bachelor’s degree as a prerequisite for licensure.
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Don't Wait Until January 1st to Implement Your Accounting Software
Herb M. Cannon, President , AEC Management Solutions, Inc.

Too many companies make the mistake of waiting until January 1st to implement their new accounting and project management software. I have personally implemented systems on January 1, mid-year and almost every other conceivable date.

Fact is - there is never a perfect time to implement a new system. But in my experience, January 1 may be the least perfect time.

Here are three reasons to implement your accounting and project management software now rather than wait until year-end.

1. Your Accounting Staff Is Too Busy at Year End
The only thing that puts more stress on your accounting staff than year end is implementing new software. Why would you try to implement software and handle year-end at the same time?

2. Cash Flow and Taxes
I prefer to have my accounting staff concentrate on managing the company cash flow to minimize tax consequences. Preparing to implement new software is a distraction that could result in poor tax planning.

3. Better Implementation Support
Since most companies implement software on January 1, your software company and implementation consultants are also busy helping everyone else. You will get better attention if you avoid the January 1 rush.

Herbert M. Cannon, President of AEC Management Solutions, Inc. and Publisher of AEC Managing Partner Newsletter, is a management consultant, seminar provider, and speaker exclusive to the A/E industry. He is available to speak at company meetings and conferences. For more information, contact Herb via e-mail or visit his website.

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PEPP 2006-2007 Executive Board

Steve Theno, P.E.
Anchorage, AK

Kevin Skibiski, P.E., F.NSPE
Springfield, MO

Pete Koval, P.E.
Syracuse, NY

Immediate Past Chair
Larry Britt, P.E.
Oxford, MS

Vice Chair, Northeast Region
Randy Rakoczynski, P.E.
Buffalo, NY

Vice Chair, Southeast Region
Dan Dawson, P.E.
Wilmington, NC

Vice Chair, Central Region
Mark Davy, P.E.
La Crosse, WI

Vice Chair, North Central Region 
Kevin Nelson, P.E.
Bismark, ND

Vice Chair, Southwest Region
Eric West, P.E.
Midland, TX

Vice Chair, Western and Pacific Region
Steven Dyrnes, P.E.
Portland, OR

Young Engineer Representative
Dawn Edgell, P.E.
Chicago, IL

SSEC Representative
Pat Christians
Birmingham, AL

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