Where a limitations of liability (LoL) clause was located in an Agreement, the clause was held not to bar recover for damages incurred by a contractor due to work being suspended pursuant to a suspension of work clause that was located in the addendum to the contract. In this interesting case, the contractor (Perini Corporation) was directed to stop work two weeks after it began working on the reconstruction of a bridge in New York City. This was because the city did not have the engineering and construction support services in place. It was not until six months later that the city directed Perini to resume its work.

After completing the project, Perini sue the city for delay costs arising out of the suspension of its work. The basis for the suit was the “suspension of work” clause that was found in the addendum to the contract. This addendum contained numerous clauses required by the federal grant agency and was required to be an addendum to the contract. Perini also sued for misrepresentation.

In the city’s motion for summary judgment, the city argued that the suit was barred by time limitations under Article 53 of the agreement which stated: “No action shall lie or be maintained against City by the Contractor upon any claims based upon this Agreement unless such action be commenced within four (4) months” of the date the Agreement was concluded or the cause of action accrued, whichever occurred first.

According to the city’s argument, Perini’s action was barred because it accrued on the date that the city issued its stop work order. Perini did not file suit until the project was completed. The trial court agreed with this argument and awarded summary judgment to the city. On appeal, the circuit court reversed this decision and held that Article 53 did not apply to Perini’s delay claim because that article only applies to claims “based upon this Agreement” and the claim by Perini was based, in the opinion of the court, not on the “Agreement” but upon the Addendum to the contract. And its claim based on misrepresentation was for a violation of fundamental obligations of an owner that were not found in the Agreement.

The court stated that the basis for distinguishing between the “Agreement” and the contract addendum as being discrete parts of the overall contract was supported by Article by Article 1 of the Agreement which provided as follows:

The following … shall be deemed to be part of this contract.

1. The Advertisement and Proposal for bids.

2. The Bid.

3. The Agreement.. . .

7. All addenda issued by the Commissioner prior to the receipt of bids.

8. All provisions required by law to be inserted in this contract, whether actually inserted or not.

Based on the express reference to the “Agreement” being a “part” of the “contract”, the court concluded that Article 53’s reference to the Agreement may not be construed as referring to the contract as a whole. According to the court, the city could have phrased the LoL clause in such a manner to make it clear that it applied all claims arising under the contract, but it did not do so. Since any ambiguity in the contract is read against its drafter, the court found that it must be read against the city and, therefore, the court refused to apply the LoL clause to the suspension of work damages. Perini Corp. V. City of New York, No. 98-7946, 1999 U.S. App. LEXIS 9207, 1999 WL 304376 (2d Cir. May, 1999).

Risk Management Note

The reader should be weary of making the argument that succeeded in this case. A court could just as easily, in this Editor’s opinion, have concluded that the Addendum was part of the Agreement since it was an addendum to the Agreement and was required to be so pursuant to federal regulations. If this holding were applied broadly, it could eliminate the applicability of the LoL clauses in many contracts. This is because it is common to refer to “this agreement” just as was done in this case, without intending thereby to limit the applicability of the clause to only the matters in the “agreement” and not the other elements of the overall contract, including the addendum. If there is a lesson to be learned here it is that (1) courts certainly can be unpredictable and (2) it is important to draft the contract documents most carefully to assure that they mean what they say and say what they mean.

Article Copyright  ã 1999, ConstructionRisk.com, LLC – Virginia

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. 1, No. 5 (Aug 1999).