|
=====================================
ConstructionRisk.com Report
http://www.ConstructionRisk.com
Vol. 6, No. 4, May 04
______________
Inside
This Issue:
•
Limitation of Liability Clause Protecting Owner is Not Voided by
Owner’s Breach of Contract or Alleged Bad Faith
•
Statue of Limitations for Negligence Instead of for Breach of
Contract Requires Dismissal of Action against Architect
.
__________
ARTICLE
#1
___________
Limitation
of Liability Clause Protecting Owner is Not Voided by Owner’s Breach
of Contract or Alleged Bad Faith
A
Limitation of Liability (LoL) clause in a contract was upheld by a court
notwithstanding allegations that the project owner had acted in bad
faith in its treatment of the contractor.
It was held to apply, however, only to the damages that would be
awarded under the contract and not to limit additional damages for
interest, attorneys fees, and other costs that were imposed under state
statute.
Where a
painting contractor and the project owner, Sun Company, could not agree
on inspection standards and whether the contractor’s paint stripping
met the contract specifications, the contractor left the job and Sun
eventually issued a letter to cancel the contract.
Sun offset its costs of re-procurement and completion of the
paint job against the balance claimed by the contractor for work it had
performed. The contractor
filed suit to recover the balance of what it thought was due for the
work that had been performed. The
trial court trial court rejected Sun’s claim that any remedies were
subject to the contract’s LoL clause because it found Sun had acted in
bad faith.
In
reviewing the matter, the appellate court stated that LoL provisions are
not disfavored by the state and that such clauses are binding on parties
unless they are unconscionable. Regardless of whether there was an
unjustified breach of contract, the court explained that by their
contract language parties may agree to waive remedies that they would
otherwise have under contract law. The court’s decision suggests that
this could be applied to both statutory and common law remedies if the
LoL clause was clearly drafted to express that intent.
In
determining the impact of Sun’s breach of its implied duty of good
faith inspection on the contract’s other provisions (such as the LoL
clause) the court reviewed the contract as a whole.
It found significant the fact that the contract contained
multiple provisions permitting Sun to “terminate,” “cancel,” or
“suspend” the contract at its sole discretion for any reason -- or
for no reason whatsoever. The
appellate court concluded that Sun had the right to terminate the
contract and was not required, as the trial court had wrongly concluded,
to try to work out with the contractor its dispute over the inspection
and the quality of the work being performed.
Nevertheless, the court found that the trial court’s error was
harmless in that the contractor was indeed entitled to recover its costs
and fees under the contract – even as terminated, and that the award
of the trial court had been within the amounts permitted under the LoL
clause which limited contractor recovery to the total contract price. John
B. Conomos, Inc. v. Sun Company, Inc., 831 A.2d. 696 (
Pa.
2003).
Risk Management Comment: The court’s discussion of the
interpretation and enforceability of the LOL clause in the contract
demonstrates several points
for consideration when drafting LOL clauses.
These clauses are often enforced even in the face of difficult
facts or allegations when both parties are commercial enterprises as was
the situation here. The
clauses can limit recovery that would otherwise be permitted under the
law of the state but to do so, they must clearly express that intent.
In this case, the clause did not expressly state that interest
and attorneys fees would be affected by the clause and the court
declined to apply it to these remedies that were imposed by statute
rather than by the contract. As
a general matter, it may be prudent to keep the LoL clause separate from
an Indemnification clause. Whereas
state anti-indemnity statutes may restrict the use of an indemnification
clause, the same statute might not restrict the use of an LoL clause.
A court that may be inclined to find an indemnification clause to
violate public policy may be less likely to find fault with an LoL
clause that parties bargained for and that only affects their rights as
against one another.
=====================================
RedVector.com
--- ON-LINE COURSES by KENT HOLLAND
Currently available risk management courses written by Kent Holland for
RedVector, (http://www.redvector.com/instructors/view_related_courses.asp?id=195)
include the following:; Contract Guide for the Design Professional,
Design Build Professional Liability Risk Management and Insurance; Site
Safety Risk and Liability; Risk Management for the Design Professional;
Managing Communication, Documentation and Reports; Insurance for
Design-Build and Complex Projects; Construction Contract Law; Contract
Claims against Design Professionals; Insurance Coverage Disputes; and
Environmental Claims. This is an efficient, easy and
cost-effective to get your continuing education credits.
Kent
’s newest courses include “ABC’s of Working on Purpose:
Finding Purpose & Creating Mission,” “ABC’s of Goals:
Setting and Achieving Goals,” and “ABCs of Managing Time and Energy
the 80/20 Way: Greater Results with Less Effort.”
=====================================
__________
ARTICLE #2
___________
Statue
of Limitations for Negligence Instead of for Breach of Contract Requires
Dismissal of Action against Architect
A
professional liability claim against an architect was governed by a
three-year statute of limitations applicable to non-medical,
professional malpractice rather than the six-year statute for actions
based on breach of contract. Regardless
of whether the alleged failures of the architect were a breach of
contract, they arose out of alleged malpractice.
Actions to recover damages for malpractice were required by
New York
law to be commenced within three years regardless of whether the
underlying theory is based in contract or negligence.
In this
case the allegations were that the architect failed to comply with
fireproofing requirements of the Connecticut Building Code applicable to
a commercial building being designed and built in
Stamford
,
Connecticut
. Almost four years after
the building was completed and occupied, the building owner brought a
demand for arbitration against the architect. (Although the project was
located in
Connecticut
, the contract apparently specified that
New York
law would be applied.)
In denying
the architect’s motion to dismiss the action based on the three year
statute of limitations having elapsed, the first court (motion’s
court) concluded that the plaintiff Owner was entitled to the six-year
statute for breach of contract because it was contending in its suit
that the architect completely failed to perform its specified
contractual responsibility and not that the architect committed
malpractice. In reversing
that decision, the appellate court stated that “whether
[architect’s] alleged failure to comply with the applicable code
provisions was a breach of contract or tortious [i.e., negligent] in
nature is immaterial for statute of limitations purposes, since the
resulting non-compliance is the same, as is the remedy sought.”
The court went on to find that the New York Legislature’s
intent was that this type of action be subject to the statute of
limitations for professional malpractice. A
Legislative Memorandum supporting certain clarifying amendments to the
statute of limitations was quoted by the court stating that it was
“the legislative intent that where the underlying complaint is one
which essentially claims that there was a failure to utilize reasonable
care or where acts of omission or negligence are alleged or claimed, the
statute of limitation shall … be three years … regardless of whether
the theory is based in tort or in a breach of contract.”
R.M. Kliment & Frances
Halsband, Architects v. McKinsey & Company, Inc., 770 N.Y.S. 2d
329 (2004 WL 57074 (2004).
Comment: This case
demonstrates the importance of specifying in the contract what law will
govern. Will it the law of
the state where the project is built or where the architect is
domiciled, or even where the project owner maintains its principal
office? The outcome of a
case can be dramatically altered by that decision.
To clarify when a cause of action accrues for the purpose of
measuring the time for filing action, there is much to be said for
specifying that date in the contract, for example as the date of
substantial completion of construction.
The time periods can be further clarified by contractually
agreeing to a specified number of years following substantial completion
in which a suit or demand for arbitration may be brought.
This can avoid completely disputes such as this one over how to
interpret state statutes of limitations.
=====================================
ABOUT
THIS NEWSLETTER & A DISCLAIMER
This
newsletter Report is published and edited by J. Kent Holland, Jr.,
J.D., a construction lawyer and risk management consultant for
environmental and design professional liability. The Report is
independent of any insurance company, law firm, or other entity, and is
distributed with the understanding that ConstructionRisk.com, LLC, and
the editor and writers, are not hereby engaged in rendering legal
services or the practice of law. Further, the content and comments
in this newsletter are provided for educational purposes and for general
distribution only, and cannot apply to any single set of specific
circumstances. If you have a legal issue to which you believe this
newsletter relates, we urge you to consult your own legal counsel.
ConstructionRisk.com, LLC, and its writers and editors, expressly
disclaim any responsibility for damages arising from the use,
application, or reliance upon the information contained herein.
=====================================
Copyright
2004, ConstructionRisk.com, LLC
Publisher
& Editor: J. Kent Holland, Jr., Esq.
8596 Coral
Gables Lane
Vienna, VA
22182
703-623-1932
Kent@ConstructionRisk.com
_____________________________________________
|
