When an oral surgeon hired a contractor to construct his office and was unable to use part of the finished office due problems with the floors, he sued the contractor for damages, including loss of profits.  The court held that the possibility that there would be lost profits if the facility were not open and available for business in time could have been reasonably foreseen at the time the parties entered into the contract and the surgeon was entitled to have a jury determine whether lost profits should be awarded as part of the compensatory damages.

After opening his dental practice, the floors in his office began seeping moisture, becoming slippery, and producing offensive odors.  He closed the surgical rooms of his office due to these conditions which were caused by improper ventilation of the concrete slab under the flooring.   He sued for lost profits due to lost patients and lost business growth opportunities.  The contractor argued that such losses were not included in the measure of damages for breach of a construction contract.

The case law of the state having jurisdiction over this case (Connecticut) supports awarding lost profits as an element of compensatory damages for general breach of contract claims, says the court.  Citing the Restatement (Second) of Contracts, the court states that recovery is divided into the components of direct damages and incidental or consequential loss caused by the breach, and goes on to state that traditionally, consequential damages include “any loss that may fairly and reasonably be considered [as] arising naturally, i.e., according to the usual course of things, from such breach of contract itself.”  The court quotes previous case law for the proposition that “it is our rule that unless they are too speculative and remote, prospective profits are allowable as an element of damage whenever their loss arises directly from and as a natural consequence of the breach.” Amrogio v. Beaver Road Associates, 267 Conn. 148, 836 A.2d 1183 (2003).

Risk Management Note:  This case demonstrates why contractors and design professionals are seeking waivers of consequential damages in their contracts with project owners.  Some of the American Institute of Architects (AIA) standard form agreements contain such waivers to protect the contractor against consequential economic damages such as lost profits or lost rents.  Project owners that believe such economic damages may be a significant part of their project risks may find it to strike such waivers of consequential damages out of the contracts for that reason.  I have attended more than one construction lawyers program where attorneys for project owners have stated that they routinely strike these clauses from contracts.

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 6, No. 5 (Jun 2004).

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