LAW
Werner Sabo, FAIA, CSI, and Shawn Goodman
Design professionals face significant liability from a variety of sources. Minimizing this exposure should be on the minds of all architects and engineers when drafting contracts. This article examines three ways to lower one’s liability exposure to a client:
- limiting the amount the client can recover if you have breached the contract or are found negligent;
- limiting liability to the firms and not the individual employees and officers; and
- shortening the statutes of limitation and repose.
Before delving into this topic, the authors offer a word of caution—one should always consult an attorney familiar with the laws of the jurisdiction where the project is located when the contract is being prepared. Each state has different laws and those laws can change from time to time. In other words, what follows is not legal advice, but something to consider when negotiating with a client.
1. Limitation of liability
The idea is to limit the amount of recovery a client can receive in the event of a claim against the design professional. It is important to note a limitation of liability is effective only as to the client and not as to third parties. This means if a worker is injured at the project site, the limitation of liability will have no effect. However, if the client sues you because you delayed the project, then it could protect you by limiting your exposure.
There are two general strategies for this type of limitation. You can limit your exposure to:
- a certain dollar amount (e.g. the amount of your fee); or
- the amount of insurance available.
For the first option, you might consider adding a sentence to your contract such as this:
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 $50,000 or the amount of the fee, whichever is greater.
(This comes from Precision Planning v. Richmark, 679 S.E.2d 43 [Ga. App. 2009], where the court held the architect’s limitation of liability clause did not violate a statute or public policy.)
In a case where the owner claimed $4.2 million in losses due to the architect’s poor services, the following contractual provision that resulted in a limit of $70,000 in damages was held to be valid:
The Owner agrees that to the fullest extent permitted by law, [Architect’s] total liability to the Owner shall not exceed the amount of the total lump sum fee due to negligence, errors, omissions, strict liability, breach of contract or breach of warranty.
(This comes from Sams Hotel v. Environs, 716 F.3d 432 [7th Cir. 2013].)
