Liability Risks

Are there any small design shops or individual boat designers/naval architects who can shed some light on dealing with liability issues? I am incorporated, but have essentially a one man company with the occassional sub contracting of excess work. I completed the YDI correspondence program about 15 years ago and have been designing commercial and recreational powerboats (15'-50') for 16 years. I'm a member of SNAME. I'm NOT qualified to be a "PE".

Given the above, is liability insurance a realistic option? If not, what are options for managing this risk?

Sorry to bring up this unpleasant topic, which I am sure many of us prefer to ignore!

Bill Lincoln

 

"Sorry to bring up this unpleasant topic, which I am sure many of us prefer to ignore!"
a quik search found this on the subject as i remembered reading about it here before, maybe someone else can give you a more specific reply, just did not want to ignore unpleasant topics yipster

 

Thanks Yipster. That is a start. Bill

 

Hi Bill,

In a nutshell, there is no liability protection for naval architects and yacht designers. This type of protection is called errors and omissions insurance. For general architecture (buildings and such) it is readily available, but in the marine field, it is essentially impossible to get. For example, even if it were available, I don't make enough money in a year to pay the premium on even the smallest coverage. The reason such insurance is not available is because we as the producers of original architectural drawings are too high a risk, and there is a very good chance that the things that we design will disappear to the murkey depths in an accident, forever unretrievable for possible defense.

When an architect designs a building, it has only to stand in one place, and if ever it burned down or was somehow damaged or destroyed, there is a good chance that evidence will be available that the insurance company can comb through to defend its architect client.

This is not the case with naval architects and yacht designers. The vessel has to float, it has to have sufficient stability, and it has to move through the water and perform to a certain defined degree. A fault in any of those things is grounds for a suit, which can get particularly complicated to defend. And it is impossible to defend should the boat sink, never to be recovered.

Naval Architects generally include a hold harmless clause in their design contracts (I do in mine) which basically says to the client, you won't sue me and I won't sue you. Jay Benford discusses this pretty well in his book "Small Ships" and he even has a sample design contract in there that includes the hold harmless clause.

Finally, if you think about it, why would anyone want errors and omissions insurance? By having it, you obtain a "deep pocket" which is what attorney's and agrieved clients always look for. If you have a deep pocket in the form of insurance, you are asking to get sued. If you don't have a deep pocket, they will leave you alone, because attorney's and clients look for big bucks, and by that I mean over a million dollars at least. I personally know of two cases where a designer was sued, and in one case the plaintiffs dropped the case because the designer did not have any insurance or appreciable assests (even a house worth a few hundred thousand dollars is not enough asset to go after), and in the other case, which is current, the plaintiffs are seriously considering dropping their suit because the designer can't even pay for his own attorney, and that attorney has dropped out of the suit. So there is no one to represent the designer.

In the end, we try to do a good job at a reasonable price, and treat our clients well so that they don't want to sue us. It has worked for me for 25 years (touch wood), and I hope it continues to do so.

 

Dear Mr Sponberg

Hi Eric

It's great to see yet one more working designer using these forums.
I (as a "gonna be" designer) hope that you will continue to participate here and share your knowledge. The rest of us might give you some ideas and additional knowledge too!

ErikG

 

read http://www.sponbergyachtdesign.com/ completely and realise that if not a very good NA/YD this Eric Sponberg would be publishing (forensic?) bestsellers or exel elsewhere, absolutely great work!

 

Yipster says:
absolutely great work!

Yeah, Eric is a good guy, and a good designer to boot. Of course, I have to say nice stuff coz I see every him other day in the coffee shop, but I'd say it anyway.
Steve

 

To all,

Thank you for your greetings. I do hope to be contributing more often. This one was my first on the website. Steve, I was wondering who "SailDesign" in Jamestown was, so now I know. For the benefit of others, not only are Steve and I in the same business, we also look alike, almost uncanny (beard, glasses, funny hats). Steve's accent is more British than mine, although I still say "toMAHto" as a result of my 3 years living in England way back when. Again, thank you for your salutations, I look forward to future contact.

Eric

 

Eric - I don't know about "not only are Steve and I in the same business, we also look alike, almost uncanny (beard, glasses, funny hats)". My hat is very serious. ;-)
Steve

 

E&O Insurance

Eric, I still have a copy of an E&O policy brochure that SNAME sent out a few years ago, (from a third party, like the mastercard and the life insurance things they are always sending out - BTW, I am told the life insurance is a very good deal). I set it aside just in case I ever decided to do outside work, and I happened on it recently.

It seemed that the general rate was on the order of $1500 for $500,000 of coverage, which is not that bad.

However, I didn't follow up on it. If you are interested, contact SNAME or leave a post, and I'll try to find it again.

I have also spoken to engineers that have only legal defense insurance, which pays for the fight but not the award. The idea is that someone suing won't have anything to get but will have a well-financed fight to get it, so it tends to discourage frivolous suits, and perhaps more important, covers you in case you are an incidental party.

This latter is worth commenting on, since it seems unfair that people who don't seem to have any real fault get sued, but the idea is that you have to sue all parties that might be conceivably involved, or it can be dismissed altogether. This prevents two people in a contract from conspiring to have one do something that allows the other one to sue a third party to the contract and leave out their conspirator. Instead, everyone has to go into court, and the court sorts out fault, supposedly fairly. The incidental parties can move to be released early, but this still requires time and some level of legal expertise.

(Though as a side note to a side note, despite the saying about a fool for a lawyer, persons acting "pro se" sometimes have a greater range of action than if they actually had representation, and if you are sued, it is wise to talk to a lawyer, but not necessarily be represented by one.)

 

I am familiar with the E&O policy that SNAME brought out a few years ago, more like 8 or 10, and soon afterwards the insurance company realized the exposure they were going to have if they did underwrite naval architects, and they dropped the business like a hot potato!

Ironically, SNAME, in its misplaced wisdom (I think) anticipates that having a P.E. license will make you more insurable. Not so, in my opinion, because the underwriter is still faced with the facts, regardless of the designer's qualifications, of necessarily insuring boat performance (however it may be defined--flotation, stability, speed and power) and survivability in the face of an accident where the evidence no longer exists. P.E. licenses are of no use in this regard.

I have also heard of attorney coverage insurance, which covers you for the time, not the judgement. This might be OK, because attorney's fees do pile up fast. But even still, that would represent a shallow pocket.

I am still taking my chances that I don't have a deep pocket, and most people will leave me alone.

Some asides to all this: Any builder of a boat necessarily is covered by product liability insurance which is easy to get and relatively inexpensive. So designers employed by builders are necessarily covered by implied professional liability. By the same token, the boats that I design for production builders necessarily have a clause built in that says if they, the builder is sued, and the claim extends to the designer, then I as the designer am covered under their policy.

The problem with legal matters in this country is that attorney's and insurance companies are so greedy that frivolous suits are the name of the game. The watchwords are "Sue Everybody, and we'll see what shakes out." I have always been a strong advocate of tort reform that specifies loser pays. This is a very powerful tactic, even more so than caps on pain and suffering. Unfortunately, the elephants in congress who write the laws are all lawyers, and many are members of the American Trial Lawyers Association, which is one of the strongest lobbies in Washington, and they are steadfastly against tort reform which includes loser pays. Loser pays, by the way, is the norm in England and in Canada, and those two countries have a mere fraction of the lawsuits that we in the US do.

If you want to read a really neat book that came out last year that discusses the sad state of the American legal system, read "The Case Against Lawyers" by Catherine Crier. An experienced attorney and judge herself, she advocates loser pays tort reform.

Eric

 

little bit out of the subject

Hi Eric

I will like to ask you a question that its not related to the excelent topic here at the forum, i will like to know if you use prosurf? and what is your opinion about it?, i'm new and looking at the post here in this forum, seems to be very usefull and easy to use, can you let me know your expierence wiht prosurf or the software for lines fairing that you use.

Thanks for your atention

 

To the guest asking about Prosurf. Yes, I do use Prosurf, but so as not to clutter this thread, I'll start a new thread, called Prosurf.

Eric