Limitation of Liability Clause Enforced to Limit Recovery to only $550,000 of a $9.5 Million Jury Verdict

Source: https://www.constructionrisk.com, September 2017
By: J. Kent Holland, Jr.

Where a housing developer won a jury verdict for more than $9.5 million against a geotechnical engineer, the court applied the limitation of liability (LoL) clause in the geotech’s contract to cap the liability at $550,000. The developer attempted to avoid the LoL by arguing that the geotech’s conduct was willful and wanton. The trial court allowed evidence in that regard, but the jury found the conduct was not willful and wanton. Therefore, the LoL clause withstood the challenge.  Taylor Morrison of Colorado, Inc. v. Terracon Consultants, Inc., 2017 WL 2180518, 2017 COA 64 (2017).

Of note was the fact that the court allowed the plaintiff’s expert witness to describe in detail the actions of the geotech it deemed to be at fault, but it excluded testimony by the expert that this conduct was “willful and wanton” because that is “not an engineering concept” but rather a “legal concept” for which an engineer cannot testify.

There was a question of whether the geotech’s deposit of $550,000 into the court registry, and an email to counsel for the developer addressing a “mutual dismissal” constituted a statutory “offer of settlement” that would have allowed the geotech to recover an award of its costs and fees of litigation. The court held it did not.

How to Offset Settlement Amounts from Others

Another issue that was addressed was whether a settlement of other parties with the developer for $592,000 would be deducted from the geotech’s own contribution of $550,000 thereby reducing the geotech’s liability to zero. That is what the trial court did. The appellate court reversed that part of the decision and held that the settlement amount should have been set off against the jury verdict first to ascertain the amount of recovery and then apply the LoL – thus rendering the geotech liable for the $550,000 per its LoL clause.

Expert Not Permitted to Testify to Legal Opinion

During the trial, the appellate court notes that the developer’s experts “provided detailed testimony describing how [geotech’s] supervision of technicians, soil testing, and review of test results failed to meet the relevant standards of care. These experts were allowed to discuss all relevant facts and opinions on [geotech’s] performance using characterizations within their expertise, even if they were not permitted to testify whether this conduct met the legal standard of ‘willful and wanton conduct.’”

Couldn’t Avoid LoL by Suing Insurance Company

The developer argued that the LoL was not applicable to the extent damages are paid under the geotech’s insurance policy. It argued the trial court erred in rejecting developer’s request to enter a judgment allowing it to pursue the geotech’s insurance carrier. This issue concerning insurance had been previously decided against the developer in earlier litigation involving this matter and the court concluded the issue was not preserved for further litigation in the current dispute.

Comment: The court stated that the LoL clause “capped [geotech’s] total aggregate liability to [developer] at $550,000 for any and all damages or expenses arising out of its services or the contract.” The actual language of the LoL clause was not quoted in the court decision. But it must have met all the requirements that I so often discuss with regard to drafting a strong LoL clause that will be broadly applied. It apparently specifically stated that the cap applied to damages whether alleged to be caused by breach of contract, breach of warranty, negligence, errors or omissions or any other theories.

As a reminder, a clause we typically recommend using reads as follows:

Limitation of Liability

To the fullest extent permitted by law, the total liability, in the aggregate, of Consultant and its officers, directors, partners, employees, agents, and subconsultants, to Client, and anyone claiming through or under Client, for any claims, losses, costs, or damages whatsoever arising out of, resulting from or in any way relating to this Project or Contract, from any cause or causes, including but not limited to tort (including negligence and professional errors and omissions), strict liability, breach of contract, or breach of warranty, shall not exceed the total compensation received by Consultant or $100,000, whichever is greater. The Client may negotiate a higher limitation of liability for an additional fee, which is necessary to compensate for the greater risk assumed by Consultant.

We also recommend that design professionals include a mutual waiver of consequential damages clause in their contracts such as the following: 

Mutual Waiver of Consequential Damages

Consultant and Client waive all consequential or special damages, including, but not limited to, loss of use, profits, revenue, business opportunity, or production, for claims, disputes, or other matters arising out of or relating to the Contract or the services provided by Consultant, regardless of whether such claim or dispute is based upon breach of contract, willful misconduct or negligent act or omission of either of them or their employees, agents, subconsultants, or other legal theory, even if the affected party has knowledge of the possibility of such damages.  This mutual waiver shall survive termination or completion of this Contract.

 

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. 19, No. 4 (Sep 2017).

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