John King successfully argued a motion for partial summary judgment on behalf of the client architect to enforce a limitation of liability clause contained in the architect's contract with the owner on a multi-million dollar project. The clause, which limited the architect's liability for errors and omission to the architect's fee, was found to be enforceable. The motion judge ruled that the loss of the fee, which was substantial, provided sufficient deterrent effect to discourage dilatory service.
Over the owner's argument that the limitation of liability should be measured against the damages sustained (over $1 million in this case) to determine the deterrent effect and enforceability of the clause, the motion judge held that the prior case law, and practical effect of the clause, required the deterrent effect to be determined by a comparison of the amount of the limitation of liability to the anticipated compensation and not the potential damages. In other words, because the architect's fee was comparatively small in compared to the multi-million dollar cost of the overall project, the architect should not be forced to face a risk of loss so disproportionately large in comparison to the potential benefit received by the architect. As between the architect and the owner, the owner was in a better position to manage and absorb the risk through insurance.
The motion judge held that a limitation of liability that absolved the architect of any damages would not be enforceable. However, in this case, the motion judge held that a limitation of liability clause that capped the architect's damages equal to that of their substantial fee did not absolve the architect from all damages but merely limited the damages to an agreed upon amount which was equal to the fee. The motion judge also found the owner to be a sophisticated party that utilized an attorney to negotiate aspects of the project. The judge noted that the owner admitted to understanding the effect of the clause at the time he signed the contract. The motion judge also found the contract not to be one of adhesion and that the owner could have retained a different architect if he found the clause objectionable.
Thompson Becker, LLC provides a wide range of both transactional and litigation services for the construction related professionals and their businesses. We have successfully prosecuted and defended various types of construction related claims. Contact us at (856) 616-8886 to see how we can help you with your construction law needs.
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