Architects, Landscape Architects, Real Estate Appraisers, and Accountants Face Increased Liability

By Edward H. Trompke

Many professionals, such as architects, accountants, real estate appraisers, landscape architects and attorneys cannot establish their professional business in a corporate form for the purpose of limiting their liability to clients and customers for malpractice. The liability of a professional for his or her own malpractice is unlimited. However, the liability of a shareholder in a professional corporation (PC), a partner in a limited liability partnership (LLP), a member of a limited liability company (LLC), or a shareholder in a business corporation is limited to $300,000 for work performed by an employee. That limitation on liability is going to increase. The exact amount of the increase will be announced in late January 2000 by the Secretary of State's office, and will be computed from the increase in the consumer price index over the past six years. It is anticipated that the liability of each shareholder will increase from $300,000 to $350,000. In addition, the liability of all shareholders combined is expected to increase from $2,000,000 to approximately $2,350,000.

What does this mean to professionals, their insurers, and the people who hire them? First, all professionals who are operating as corporations, PCs, LLCs, or LLPs should notify their insurance carriers and increase their primary liability coverage to these new amounts. If appropriate, they also should notify their surplus line carriers to determine how their coverage will be affected. It is possible that surplus lines coverage will not cover the increased amount, leaving the professional uninsured for the gap.

Clients and customers will continue to expect their professional advisors to perform in a non-negligent manner, and should make sure that the professional has adequate insurance for the job.

The new amount will go into effect on February 1, 2000. It is entirely unclear from the statutes whether the increased liability refers to claims arising from malpractice committed after February 1, injuries that occur after February 1, claims brought after February 1, judgments rendered after February 1, or some other event occurring on or after February 1, 2000. Fortunately, most professionals do not have to worry about pending claims or cases, so the uncertainty will not be an issue for them. However, for professionals with pending or new claims, their insurers and attorneys will have to sort out the liability amounts.

The Professional Liability Fund, which insures all Oregon attorneys, has determined that no cases in recent memory have turned on the amount of coverage. The major issue has been whether or not coverage existed. The PLF took a survey of attorneys in 1999, and determined that there was insufficient interest in increasing the amount of coverage to do so for policies covering the year 2000. The PLF will revisit the issue during the coming year for the year 2001.

All this raises the question, "Why can't professionals limit their liability entirely?" Why should a seller of tainted food be able to stand behind the corporate shield and protect all his or her personal assets from injured consumers, while a "professional" cannot? There are two reasons, the first of which is an anachronism, and the second of which has no consistency for its existence. First, professionals in the nineteenth century were not able to incorporate under the business corporation laws (they were not businesses, but professionals) so the corporate shield was not available to them. That, of course, does not reflect the reality of the modern professional office, and corporate laws have been changed by the Legislative Assembly to reflect this outside the malpractice area.

The second reason is a better indicator of why the Legislative Assembly has not acted. Consumer groups, primarily trial lawyers who represent plaintiffs in malpractice actions, have lobbied the Legislative Assembly to prevent a limitation of liability, even when insurance is provided by the professional. The merits of this rationale is open to question and is the subject of constant debate.

So, no limitation on the liability of a professional for his or her action (or failure to act) will continue to be the norm. The limitation on liability for the action or inaction of another in the firm will increase this year.

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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