Construction Risk

Limitation of Liability Clause Enforced in Favor of Architect by Georgia Court

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 partial summary judgment to enforce the clause was denied by the trial court which found the clause to be unenforceable.  In reversing the trial court and holding the clause enforceable, the court found that no Georgia statute or public policy prohibits a professional architect from contracting to limit its liability.

In Precision Planning, Inc. v. Richmark Communities, Inc., 679 S.E.2d 43 (Ga. App. 2009), the contract between the developer and architect contained a limitation of liability (LoL) clause as follows:

“D.  It is agreed that the [developer] will limit any and all liability for any damage on account of any error, omission or other professional negligence to a sum not to exceed $50,l000 or the amount of the fee, whichever is greater.  If [the developer] prefers to have higher limits of professional liability, the limits can be increased to a maximum of one million ($1,000,000.00) dollars upon [the developer’s] written request at the time of acceptance of this proposal provided that  [the developer agrees to pay additional specified consideration].”

As noted by the court, the developer did not exercise the option of the higher limits.

Paragraph E established an indemnification clause as follows:

“E.  The [developer] agrees to defend, indemnify and hold [the architect] harmless from any claim, liability or defense cost in excess of the limits determined above for injury or loss sustained by any party from exposure allegedly caused by [the architect’s] performance of services hereunder, except for injury or loss caused by the sole negligence or willful misconduct of [the architect].”

The question for the court was whether the LoL clause was void for being in contravention of a public policy.  In deciding that question, the court considered several Georgia decisions, including the 2008 decision of Lanier At McEver v. Planners & Engineers, 663 S.E.2d 240 (2008), that found an LoL unenforceable.   The key to the court’s decision in this case was its finding that “Paragraph D did not purport to indemnify or hold the architect harmless from damages but simply established a bargained-for cap on the liability of the architect to the developer for the architect’s breach or negligence.”

Critical to the court’s decision was its rejection of the plaintiff’s argument that the indemnity clause of paragraph E contravened a Georgia anti-indemnity statute and therefore made the LoL clause unenforceable.  The court concluded that the indemnity clause did not contravene the Georgia law which only prohibited the architect from being indemnified for damages “caused by or resulting from the sole negligence of the promissee [architect]….”  Here the indemnity specifically excluded indemnity in the event of the architect’s sole negligence, and it therefore satisfied the statutory requirements.

Even if the indemnity clause had been unenforceable, however, the court states it would have nevertheless enforced the LoL clause, because:

“Significantly, this additional provision did not purport to modify the terms of paragraph D which pertained to the architect’s liability to the developer, but instead simply gave the architect limited protection from third-party liability by requiring the developer to indemnify the architect from third-party liability where such liability exceeded the $50,000/amount-of-fee limit and did not arise out of the architect’s sole negligence or willful misconduct.”

In conclusion, the Court of Appeals found that the trial court erred in finding the LoL clause and the indemnification clause unenforceable, and held that the court should have granted the architect’s motion for partial summary judgment to enforce the LoL clause.

Comment: This case is an important clarification of Georgia law following the confusion that resulted from the decision in the 2008 case of Lanier at McEver which found that an LoL clause in that matter contravened public policy and was unenforceable.  The court seems to have used the opportunity of this current case to explain that the holding of Lanier is unique to the rare circumstances of that particular case in which the court found the contract language effectively contracted away a party’s liability for accidents caused solely by his negligence, and it is the “complete avoidance of liability to third parties for sole negligencein a building contract [that] is … what [the Georgia statute] prohibits.”  (emphasis in original).  This decision effectively settles the Georgia law in favor enforcing appropriately drafted LoL clauses such as the one involved in this case.

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