Three ways to limit your liability

Other courts have refused to uphold similar attempts to limit a design professional’s liability. For instance, in a Georgia case—McEver v. Planners, 663 S.E.2d 240 (Ga. 2008)—the court held this provision violated public policy (there was a dissenting opinion):

In recognition of the relative risks and benefits of the project both to [Lanier] and [PEC], the risks have been allocated such that [Lanier] agrees, to the fullest extent permitted by law, to limit the liability of [PEC] and its sub-consultants to [Lanier] and to all construction contractors and subcontractors on the project or any third parties for any and all claims, losses, costs, damages of any nature whatsoever, or claims expenses from any cause or causes, including attorneys’ fees and costs and expert witness fees and costs, so that the total aggregate liability of PEC and its sub-consultants to all those named shall not exceed PEC’s total fee for services rendered on this project. It is intended that this limitation apply to any and all liability or cause of action however alleged or arising, unless otherwise prohibited by law.

Today, it appears most courts will enforce a reasonable limitation of liability provision in a contract between the design professional and the owner so long as the limitation is reasonable and the parties had an opportunity to negotiate that provision. A limit of $10 is unlikely to be upheld, while a limit of the amount of fees is likely to pass muster.

Owners may be more comfortable with a limitation if the limit is tied to insurance. For instance, the first provision quoted above might be amended to read:

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 the amount of the fee or the amount of available insurance providing coverage for the claim, whichever is greater.

It is important to note the suggested language includes the word “available.” This avoids the ambiguity that may be created by simply citing “insurance.” For instance, the architect may have $1 million in coverage. Most professional liability policies are written so there is declining coverage as claims or attorneys’ fees and costs are paid. If the architect has two claims and the insurance pays $100,000 on one claim, there will be only $900,000 left to cover the second claim. This is the amount “available” for that claim at that time. If that claim is litigated and $250,000 is spent on attorneys to defend the claim, there will only be $650,000 left on that policy.

Thus, it is important to limit the amount the owner can receive to the available insurance. This consideration may cause the owner to require the design professional to increase its coverage and the designer should then ask for additional fees to cover the increased cost of that insurance.

At least at the contract negotiation stage, most owners would not anticipate going after individuals in case of a claim. They recognize that, for anything major, they want insurance coverage. It is that insurance coverage that would be the source of funds to compensate them for their loss. It is not unreasonable, then, for this limitation to apply as long as there is adequate insurance coverage.

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