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New Protection for Professionals?
Virginia Supreme Court Limits Liability of Engineer
The Virginia Supreme recently decided
a case that limits the professional liability of design professionals
and could have application to all professionals practicing under the
protection of professional corporations, professional limited liability
companies or professional limited liability partnerships. Gerald E.
Moore & Son, Inc. v. Drewry, 251 Va. 277 467 S.E. 2d 811 (1996)
The Plaintiff contracted with an engineering
firm (D&A) for the design and supply of a furnace for remediation of
petroleum contaminated soil. The engineering firm was incorporated as
a Professional Corporation. The contract was signed by D, the president
of the firm, who was himself a licensed professional engineer. When
the equipment failed, the Plaintiff sued D&A for breach of contract
and negligence, and D for negligence. Both were found liable for more
than $100,000.00 in damages. D appealed on the basis that he could not
be held responsible for an "economic loss". The Supreme Court of Virginia
agreed and the judgment against him was set aside.
Economic loss can be contrasted with
damages for personal injuries which would be recoverable. In Virginia,
the "economic loss doctrine" bars the recovery for negligence where
the defendant is not a party to the contract.
The importance of this case is that
the bar of the economic loss doctrine was upheld in protecting a member
of a professional corporation. Most of us thought that the protection
of a professional corporation or other limited liability entity could
not protect a professional from liability for his or her own errors
or omissions but only those of other employees of the entity. A Virginia
statute provides in part that "No such organization shall limit the
liability of any licensee or certificate holder [professional] for damages
arising from his acts."
This case could have far reaching effects.
There is no reason to believe that this same protection would not apply
to any properly incorporated architect, engineer, lawyer, accountant
or other professional whose malpractice causes only "economic loss"
as opposed to personal injuries.
All professionals should give serious
consideration to availing themselves of the protections of limited liability
Architects, engineers, attorneys and
accountants already practicing in professional corporations or other
limited liability entities should make certain that they sign their
contracts in their representative (corporate) capacity and not individually.
In order to do this the signature should indicate the name of the corporation,
the name of the person signing and his or her title e.g. "President".
Other forms of signature could be construed as being a personal undertaking
of the professional.
The practical effect of this decision
could be that professionals could limit their exposure to liability
for economic loss to the assets or insurance of the professional entity.
While no one should cancel his professional
liability insurance on the basis of this decision, professionals should
give new attention to limited liability entities .We will continue to
monitor these events and others that affect the business community.
Feel free to call for an update.
Copyright 2007 by Cowles, Rinaldi, Judkins & Korjus,