Several years ago, the right to incorporate a professional
practice was extended from engineers and architects to other
Ontario professionals such as doctors, dentists, lawyers and
accountants. This provides significant tax advantages to small
professional practices. At the time, much was made of the fact that
professional corporations don't hurt the public, because they
don't limit liability for professional negligence. That is, the
personal assets of incorporated doctors, dentists, lawyers and
accountants remain available to provide compensation to potentially
injured patients and clients. (See section 3.4 of the Business
Corporations Act ("BCA")). In this way, professional
corporations are unlike every other business corporation, which
protect their shareholders from personal liability.
Unfortunately for the public, quite different rules
apply to engineers (and architects). According to the
Association of Professional Engineers of Ontario ("PEO"),
section 3.4 of the BCA doesn't apply to them. They argue that,
because the certificate of authorization regime in section 12 of
the Professional Engineers Act ("PEA") was
already in place prior to the amendment of the BCA in 2000, the PEA
regime trumps. This seems like a poor argument: doctors, lawyers,
accountants etc. must also obtain certificates of authorization
from their regulatory bodies before they may incorporate a
This might not be so bad if clients hurt by negligent engineers
were compensated in some other way. Members of the public generally
believe that an engineer's stamp is backed by adequate errors
and omissions insurance, under the supervision of the professional
regulatory body (the PEO), just as the Law Society of Upper Canada
insures lawyers in private practice. The widespread belief that
engineers are adequately regulated and insured was a major factor
in having all professional engineers recognized as "qualified
persons" to conduct environmental site assessments under
O.Reg. 153/04 (Records of Site Condition). Alas, it isn't
nearly so simple.
One problem is that engineers' minimum insurance coverage is
very low. Corporations of professional engineers need only purchase
insurance of $250,000 per single claim and $500,000 aggregate per
year (see section 74 of the PEA Regulations). This is rarely
enough, especially in environmental cases.
A second problem is that the PEO does not provide even the
minimum insurance itself. This leaves each engineering firm to buy
its insurance on the open market, and the terms of such insurance
vary. To save money, some firms buy "eroding" coverage.
This means that, if sued, a negligent engineer can use up the
entire amount of the insurance policy to pay their own lawyers,
leaving nothing to satisfy the claims of their innocent
Third, many engineers conduct their business so that the
engineering corporation has no realizable assets other than its
insurance policy. The corporation may rent its premises, pledge its
accounts receivable to the bank, and pay out almost all its income
every year to its shareholders.
Fourth, the PEO may be willing to let negligent engineers walk
away from debts of one corporation (even judgments to pay damages
caused by professional negligence), and then open business again in
a new engineering corporation.
The combination is bad news, both for the professional
reputation of engineers, and for their clients, who may suffer huge
damages from negligent environmental engineers and be unable to
recover a penny. The PEO's Certificate of Authorization Review
Task Group (see its February 11, 2002 Final Report) did recognize
some problems with their current regulatory process:
"The [PEA] does not impose any requirements, qualifications
or responsibilities on the owners, directors or officers of C of A
holding entities... A firm can operate unprofessionally and the
supervising P. Eng.(s) may be disciplined but unlicenced owners and
managers, who may have made the decisions, are immune to PEO
Since then, however, nothing has been done to address either
this problem or the weaknesses of the insurance regime.
Clients of professional engineers (and architects) must
therefore be warned, and be wary. No one should retain an engineer
for significant environmental services without carefully checking
that he/she holds adequate insurance, and eroding policies should
never be considered to be adequate insurance. Caveat emptor
– let the buyer beware!
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