Court Upholds Limitation of Liability Clause
Construction Risk Magazine recently ran an article covering a lawsuit were a limitation of liability clause was contested.
The clause was originally set at a significant percentage of the design professional’s fee, but from additions to the project scope ended up being much less significant. The plaintiffs tried to get the clause waived after the fact. The court’s ruled:
“The fundamental tenet of modern contract law is freedom of contract; parties are free to mutually agree to terms governing their private conduct as long as those terms do not conflict with public laws.” (citation omitted). “This tenet presumes that parties are in the best position to make decisions in their own interest.” (citation omitted). “A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contract, so far as the same is ascertainable and lawful.” Section 28-3-301, MCA; Mary J. Baker Revocable Trust, ¶ 21. “To permit the avoidance of a written contract because the terms of the contract now appear burdensome or unreasonable would defeat the very purpose of placing a contract into writing.”
The court basically refused to throw out the the LoL clause and honor the contract as it was originally entered into.
There are two lessons here: 1.) there is precedent to upholding a limitation of liability clause, and 2.) If a project’s scope increases, it would be in everyone’s best interest to revisit any existing LoL clause language to see if it needs to be renegotiated.
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PDI is an Indianapolis-based wholesale brokerage firm with a national network that includes thousands of insurance agents, brokers, architects, engineers and contractors in all 50 states. Since PDI’s beginning in 1980, we’ve handled a single line of coverage: errors & omissions (E&O) for design professionals.