Vol. 4 No. 7		July 1985

There is a good deal of precedent for limitation of liability. The concept is deeply rooted in the English Common Law, and it has been successfully applied in the construction industry in the United States for more than a decade. It is based on the time-honored principle that risk ought to bear some reasonable relationship to the anticipation of gain. That seems fair.

Historically, limitation of liability has been a response to crises born of an imbalance of risk--to situations in which the survival of systems for the delivery of essential goods and services has been threatened by inordinate exposures to loss. The unprecedented severity of the professional liability problem facing architects and engineers today may well be an indication of just such an imbalance. It may be time to re-evaluate the limitation of liability alternative.

In the late 16th Century, when London shipowners found themselves burdened with staggering claims for cargo lost at sea, they appealed to the British Parliament for relief. At issue was the survival of the nation's maritime industry. Recognizing that shipping was an inherently risk-prone activity and acknowledging that both shipowners and the owners of the cargo they carried stood to benefit from the undertaking, Parliament concluded it was unfair for the shipowners to have to bear the entire risk. It acted to limit their liability to the value of the ship's hull.

This not only solved the shipowners' problem, but it had an important impact on the evolution of a vital industry, as well. The parties found themselves with a far greater interest in minimizing the possibility of mutual loss than in continuing their battle to maximize the gain of one at the expense of the other.*

In the early 1970's, geotechnical engineers in the United States faced a similar crisis. Inundated with claims of professional liability and burdened with a history of losses grossly out of proportion to their participation in the industry they served, they suddenly discovered they could no longer purchase professional liability insurance at any price. The stakes were high. The survival of the profession was in jeopardy.

Out of this crisis came a resolution to act. The Association of Soil and Foundation Engineers (ASFE) was formed, and the concept of limitation of liability was introduced. It was the beginning of a decade-long effort to persuade clients, contractors, the bar, and the bench of the necessity of placing some reasonable limit on the risk of expressing a professional opinion.

It was a controversial innovation. The barriers to success seemed insurmountable at first. The enforceability of the concept was clouded by uncertainty and doubt, and there were widespread reservations about the propriety of shifting responsibility for professional performance to someone else.

How well have the members of ASFE fared? The barriers to limitation of liability have proven to be anything but insurmountable. Its use has become commonplace, and its enforceability has been established in state after state. Today, it provides geotechnical engineers with an essential measure of protection against the consequences of yet another, rapidly deteriorating professional liability environment.

The professional liability problem facing architects and engineers in 1985 is very much like the crisis that threatened the geotechnical engineering profession 15 years ago. As the courts cast further and further afield in their search for resources to make the injured whole, defense costs and losses continue to mount. Insurance premiums are skyrocketing.

To make matters worse, the capacity of the insurance industry is rapidly being eroded. As a result, underwriting has become more and more restrictive in terms of both the selection of risks and the breadth of coverage offered. Some firms are unable to find an insurer willing to offer them coverage under any set of circumstances. For many, survival has indeed become an issue.

The seriousness of the problem has propelled professional liability to the forefront of concern for architects and engineers throughout the country. As ACEC, ASCE, and the AIA mobilize their resources to search for solutions, it may well be that a unified effort to expand on ASFE's limitation of liability initiative is called for. Certainly, it is an option that might be given careful consideration.

From your point of view, there are three major concerns: 1) your sense of professional responsibility to your clients and to the public; 2) the intensely competitive nature of the marketplace in which you offer your services, and 3) the inherent difficulty in introducing yet another issue of responsibility into your negotiations with your clients. Balanced against these concerns are the escalating legal and insurance costs you face. They tend to make the concept of placing some reasonable limits on your potential liability to others more compelling than ever.

How much are you willing to gamble for the privilege of keeping your doors open and enjoying, at least in good years, the possibility of a modest profit? Is it worth putting your practice on the line with each and every project you undertake? Is it worth risking whatever personal wealth you may have been fortunate enough to accumulate? Probably not. Why, then, would it be unreasonable to seek to place some limit on your exposure to loss? Many architects and engineers have done so for years--in spite of intense competition and the difficulties they have encountered in explaining their position to their clients.

It is time for action, and there is much to be done. As the profession gears up to respond to the professional liability threat, the question, "How much risk is too much?" might well be placed high on the agenda.

Limitation of liability is one option among many. It has proven successful for others. It deserves careful examination and reasoned debate. An extensive effort will be required to restore balance to the allocation of risk in construction, but there is strength in numbers. With your energy and support, the odds for success are high.

* Association of Soil And Foundation Engineers, What Owners Should Know about Limitation of Liability (Silver Spring, MD: 1982), p. 3.