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An engineering firm performed soil studies and rendered an opinion on the suitability of using septic systems in a residential subdivision being developed by its client. The client sued the engineer on the basis of allegedly inaccurate conclusions. The engineer successfully moved for summary judgment to enforce a limitation of liability (LoL) clause in its contract. According to the Georgia Court of Appeals, the clause was a reasonable allocation of risk negotiated between two companies with equal bargaining position and it was not contrary to public policy or any state statute.

In the case of RSN Properties, Inc. v. ECS, Ltd., 686 A.E.2d 853 (Ga.App. 2009), the LoL clause provided as follows:

“[RSN] agrees to limit ECS’s liability to [RSN] arising from ECS’s professional acts, errors or omissions in performing this Agreement, such that the total aggregate liability of ECS to [RSN] shall not exceed $50,000 or the value of services rendered, whichever is greater.”

In analyzing the law and facts, the court stated:

“We find no statute that prohibited ECS from contracting with a real estate developer to limit its liability to the developer for professional engineering services. Compare Precision Planning v. Richmark Communities, 298 Ga.App. 78, 80, 679 S.E.2d 43 (2009) (no statute prohibits professional architect from limiting liability to developer). Professional engineers are subject to statutory regulation which requires adherence to rules of professional conduct and practice designed to protect the safety, health, and welfare of the public. OCGA § 43-15-1 et seq. Nevertheless, the public policy expressed in these regulations was not violated by the limitation of liability provision in the contract between ECS and RSN. In this case, a real estate developer (RSN) and an engineering firm (ECS)-parties in relatively equal bargaining positions in a commercial setting-contracted for the provision of professional engineering services necessary for a residential development. On a contract for ECS to perform $2,200 of engineering services related to the development, the parties exercised business judgment in agreeing to limit ECS’s liability to RSN for engineering errors to no more than $50,000. Generally, inclusion of a limitation of liability provision in a contract of this nature recognizes that the fee for the service is small compared to the substantial liability which could arise from an error in providing the service. The provision reflects an arms-length bargain to perform the service at the agreed-upon fee in return for the liability cap. The limitation of liability provision did not release ECS from liability for its engineering errors. ECS remained liable to RSN for its errors up to $50,000. Nothing in the contract exculpates, holds harmless, or otherwise limits ECS’s liability to third parties. [citation omitted]. Although the limitation of liability provision capped ECS’s liability to RSN, ECS remained substantially responsible for its professional errors and retained the incentive to perform engineering services with due regard for the safety, health, and welfare of the public. [citations omitted]. Under these circumstances, we find that the limitation of liability provision in the contract represented a reasonable allocation of risks in an arms-length business transaction, and did not violate the public policy….”

Comment: This case seems to finally end any uncertainty in the state of Georgia concerning the availability of limitation of liability clauses to establish a reasonable allocation of risk between design professionals and their clients. The clause in this case applied only to claims by the client against the design professional. It did not attempt to limit liability arising out of third party claims. Nor did it attempt to eliminate or avoid responsibility and liability altogether. It thereby avoided the confusion noted by other recent cases in Georgia where the LoL clauses attempted to apply to third party claims and thereby potentially run afoul of the state anti-indemnity statute.

In this suit for over $100,000, the engineer’s fee was only $2,200. The LoL clause wisely limited liability to the greater of the amount of the fee or $50,000. The fact that an engineer agrees to be subject liability many times greater than its fee can be useful in demonstrating the reasonableness of the LoL clause. When the fee is small, it is possible that a court might consider that amount as too nominal or inconsequential to establish a reasonable LoL. Establishing a reasonable threshold amount such as $50,000 or some other reasonable amount below which the LoL will not fall may make the LoL clause less vulnerable to successful challenge.