Limitation of Liability Clause
An excellent way to limit the amount of liability undertaken by the design professional is the limitation of liability clause (LoL) . By including a limitation of liability clause in your contract, you can better predict the extent of your potential liability and obtain appropriate coverage at a more reasonable cost.
The rationale for capping liability for design professionals is that the small fee paid to the design firm does not justify the firm’s assumption of all the risk. The project owner benefits from the sharing of risk because it is able to obtain innovative and cost-effective designs.
The profit margin for design firms does not support their taking on unlimited risk for project owners. With today’s high insurance premiums, one way to reduce the premiums to everyone’s benefit is to include a limitation of liability clause in more contracts. Underwriters generally consider the presence of a limitation of liability clause when underwriting and pricing the risk.
Include a Limitation of Liability Clause in your own standard form contracts. Ask your client to include an LoL clause in its form contracts as well.
Based on the success of many firms at getting these clauses into their contracts, and the further success in enforcing them in litigation, it is wrong to assume that you should not ask for and expect this clause.
Sample Limitation of Liability Clause
Below is an example of a well structured limitation of liability clause for a construction contract:
To the fullest extent permitted by law, the total liability, in the aggregate, of Consultant, Consultant’s officers, directors, partners, employees, agents, and subconsultants, to Client, and anyone claiming by, through, or under Client for any claims, losses, costs, or damages whatsoever arising out of, resulting from or in any way related to this Project or Agreement from any cause or causes, including but not limited to negligence, professional errors and omissions, strict liability, breach of contract, or breach of warranty, shall not exceed the total compensation received by Consultant or $50,000 whichever is greater.
Articles on the Limitation of Liability Clause from ConstructionRisk newsletters:
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...read more
An architect’s contract containing a limitation of liability clause (LoL) was enforced to grant a partial summary judgment limiting the architect’s liability to $70,000 in the face of a $4.2 million claim for damages due to structural problems that required a nearly...read more
By: J. Kent Holland, Jr. Where the developer of an apartment complex brought suit against a professional engineering firm, seeking damages allegedly resulting from the negligent design of the storm water drainage system for the complex, the court granted a partial...read more
Limitation of Liability Clause Protecting Owner is Not Voided by Owner’s Breach of Contract or Alleged Bad Faith
A Limitation of Liability clause (LoL) in a contract was upheld by a court notwithstanding allegations that the project owner had acted in bad faith in its treatment of the contractor. It was held to apply, however, only to the damages that would be awarded under the...read more
A $50,000 Limitation of Liability clause in a contract was enforced by the Georgia Court of Appeals in a case where a developer sued an architect for breach of contract and negligence when a retaining wall designed by the architect failed. The architect’s motion for...read more