Claims Retrospective: Engineers Who Have a Small Business Should Have a Contingency Plan in Place in the Event They Become Incapacitated or Die Unexpectedly
While no one likes to think about their death or incapacitation, it is important that owners of small businesses set up a contingency plan in case of such an event to protect not only their businesses but also their loved ones.
Many of the engineers insured through the ASCE program are small businesses, consisting of sole proprietors or an entity for which there is only 1–2 professionals involved. If the only professional involved in the business suddenly becomes incapacitated or dies and a claim is asserted against them, their estate, or their business in relation to previously provided professional services, it can prove difficult, if not impossible, to protect them, their estate, or their business. This is because often the only person with knowledge of the underlying services and authorization to act on behalf of the business is not available and no other person has been designated to step in and act on their behalf.
If there is no one to respond to the allegations made in a claim or to verify pleadings and discovery or testify in litigation, it will be impossible to defend the engineer and/or his or her business, which will likely lead to an adverse outcome. Likewise, it can jeopardize the insured engineer’s insurance coverage, as the insured will be in violation of its duty to cooperate under the policy. Further, the insurer will have no difficulty showing that it was prejudiced by its inability to mount a defense to the claim where there is no one to assist in the insured engineer’s defense.
Many professional liability policies, including those issued through Pearl Insurance for the ASCE program, also require the insurer to obtain the insured’s consent before the insurer can settle a claim. If there is no one to consent to settlement, it could make it implausible for the insurer to even attempt to protect the insured through settlement. Further, the insurer may be able to limit its liability by use of a “hammer” clause—a clause which states that if the insured refuses to consent to a settlement recommended by the insurer, then the insurer’s liability under the policy is limited to the amount for which the insurer could have settled.
An engineer may be asking why they should care if they are incapacitated or dead. The engineer’s incapacitation may be temporary, and they may recover only to find that they have received a significant blow to their business, financial situation, and/or reputation. Even if the engineer is deceased, their loved ones could be potentially adversely affected by a claim that goes undefended, as the individual engineer who stamped drawings is often sued personally in litigation, meaning the claimant can pursue the engineer’s assets and/or estate, depleting the assets of the engineer that were left to family and loved ones. Even if the insured is an entity and the individual engineer is not sued directly, the claimant may attempt to pierce the corporate veil and pursue the engineer’s assets and/or estate, again depleting the assets of the engineer that were designated for family or loved ones.
Therefore, engineers who have small businesses should invest the time and effort to set up a contingency plan in the event they become incapacitated or die unexpectedly. They should designate a person or persons to manage their business affairs upon their incapacitation or death, preferably another trusted professional who understands the nature of their business and services. They should also leave the designated person or persons instructions on how to manage any disputes that have arisen or might arise and where to find the relevant documents/records. It is also important that the engineer notify the designated person or persons of their role so that the person or persons are aware of and agree to their role in advance of the engineer’s incapacitation or death.
Having a clear contingency plan in place is the best way to protect the engineer’s business and loved ones in the event tragedy should strike and includes the added benefit of providing the engineer with some comfort and security.
