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Where a limitation of liability clause in a design professional contract would limit a homeowner’s claim against its designer to the total fee for services, the plaintiff sought to avoid the affects of the clause by asserting that the designer had acted with gross negligence in drafting plans that resulted in their home being constructed almost two feet lower than applicable regulations pertaining to flood plains allowed.  The appellate court, in Saja v. Keystone Trozze, LLC, 106 A.D.3d 1168 (NY 2013), found in favor of the designer.  It affirmed the summary judgment that had been granted by the trial court to the designer, and found that the allegations of the plaintiff failed to raise a question of fact as to whether the designer was grossly negligent.  This was because “the conduct alleged does not evince the necessary reckless indifference to the rights of others that would render the limitation of liability clause unenforceable.”

The limitation of liability (LoL) clause in the contract, as quoted by the court, provided in relevant part that the plaintiff “agree[d], to the fullest extent permitted by law, to limit the liability of [designer] … to [plaintiffs] … for any and all claims, losses, costs, damages or any nature whatsoever or claims expenses from any cause or causes, so that the total aggregate liability of [designer] … shall not exceed [its] total fee for services rendered on this project.”

The court explained that “As a general rule, parties are free to enter into contracts that absolve a party from its own negligence or that limit liability to a nominal sum.”  But the court further explained that “As a matter of public policy, however, exculpatory or limitation of liability clauses are not enforceable in the face of grossly negligent conduct.”  The issue, therefore, was whether the allegations of gross negligence were sufficient to abrogate the limitation of liability, and the court found the allegations lacking in that regard.

Comments on the Limitation of Liability Clause

The court interpreted and applied the limitation of liability clause to apply to both negligence and breach of contract claims, even though the clause was somewhat generic in stating that the limitation would apply to “any and all claims, losses, costs, damages of any nature whatsoever for claims expenses from any cause of causes….”  Courts in other jurisdictions might require that the LoL clause be written to specifically name the types of causes of action to which it applies, such as torts, negligence, breach of contract, breach of warranty, and strict liability.

The court also did not address the dollar amount of the LoL that was limited to fees, and whether it evaluated its sufficiency under the circumstances.  Courts in some jurisdictions may have considered whether the fees caused the LoL to be so nominal as to be unenforceable.

When drafting LoL clauses, many commentators have suggested that it is prudent to specify all the types of actions to which it may be applied, and to also set the LoL amount at something that is deemed significant and not merely nominal.  If fees are rather small, for example, it may be prudent to specify that the LoL will equal the amount of the fees, or $________, whichever is greater.

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. 15, No. 9 (Sept 2013).

Copyright 2013, ConstructionRisk, LLC