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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 entities.

         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, Ltd.