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 professional corporation.
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 victim.
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 regulatory practices."
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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