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Construction contractor was prohibited by contract from suing the project engineer for damages it claims were sustained as a result of the engineer’s alleged professional negligence in the interpretation and application of the plans and specifications of the project. A clause in the general conditions of the construction contract expressly stated that no decision made by the engineer is “good faith” would create any duty owed by the engineer to the contractor. The court found that the contract clause did not violate public policy and it found that even though there was testimony that the engineer made mistakes, there was no evidence that the standard of care was violated. Moreover, testimony established good faith was exercised. Domson, Inc. v. Kadrmas Lee & Jackson, Inc., 918 N.W. 2d 396 (South Dakota 2018).

Paragraph 9.9 of the general conditions provided the following:

“Neither Engineer’s authority or responsibility under this Article 9 or under any other provision of the Contract Documents nor any decision made by Engineer in good faith either to exercise or not exercise such authority or responsibility or the undertaking, exercise, or performance of any authority or responsibility by Engineer shall create, impose, or give rise to any duty in contract, tort, or otherwise owed by Engineer to Contractor, or any Subcontractor, any Supplier, any other individual or entity, or to any surety for or employee or agent of any of them.”

The trial court enforced article 9.9 to dismiss the suit.   On appeal the Supreme Court of South Dakota did a nice review of case law concerning what duty of care an engineer might owe to a contractor, and whether contract provisions could waive that duty.

Both the trial court and appellate court recognized that under South Dakota law, an engineer can owe a duty to a contractor despite the lack of contractual privity of contract between the parties. But, both courts also concluded that the contract language insulated the engineer from liability for its “good faith acts and failures to act.” Therefore, although a duty may exist under the law, the court went on to examine the effect of paragraph 9.9 of the contract.

The contractor argued that the clause should be viewed as an indemnity provision that violated a state anti-indemnity statute. It also argued as a general matter that the clause violated public policy and must be declared void accordingly. The court concluded: “Although [state statute] mandates responsibility for injury caused by willful acts or want of ordinary care or skill, nothing in this statute prohibits one party from agreeing by contract to release a third party from liability for ordinary negligence.”

With regard to declaring a contract to be void as against public policy the court explained that it would do so only if there was no doubt about the contravention of public policy. As explained by the court, “[T]his Court has cautioned ever since territorial days” that “ ‘[t]he power of courts to declare a contract void for being in contravention of sound public policy, is a very delicate and undefined power; and, like the power to declare a statute unconstitutional, should be exercised only in cases free from doubt.’ ”

The court went on to further explain,

“Paragraph 9.09 is valid and enforceable in this case because [contractor] has not identified that Paragraph 9.09 contravenes sound public policy in this State under these particular circumstances. The exculpatory language unambiguously informed [contractor] that Dakota Engineering/KLJ would be immune from suit in tort or contract arising out of Dakota Engineering/KLJ’s good-faith acts and failures to act by the authority given to them under the contract and contract documents.”

“Based on our review of the record, Dakota Engineering/KLJ established a prima facie case of good faith against [contractor’s] claim of negligent interpretation and application, implicating the protections under Paragraph 9.09. Therefore, as the party resisting summary judgment, [contractor] was required to identify a material issue of fact in dispute on the question of Dakota Engineering/KLJ’s good-faith acts and failures to act.”

The court noted that the contractor opposed the summary judgment motion with an expert witness affidavit that alleged failure of the engineer to meet the standard of care in administering the contract. But that was not sufficient according to the court to counter the engineer’s prima facie showing that it had acted in good faith. As stated by the court, the contractor “relies on general allegations … that because [Engineer] performed below acceptable standards, their actions necessarily lacked good faith.” That was not sufficient to withstand the summary judgment motion.

 

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. 20, No. 10 (Jan 2019).

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