Construction Law Today : Construction Lawyer & Attorney : Joshua Glazov : Design Build Contracts, Construction Bankruptcy

• If you're a prime contractor or a subcontractor.  This new case is good and bad for  you.
  

• First the good.  Under cases like AR Moyer, Inc. v. Graham you've had some ability to sue architects, engineers, and other design professionals when their professional malpractice costs you money, even though you don't have any contract with them.  I don't know why under that set-up a contractual limitation of liability should affect you - how does a provision in a contract you're not a party to limit extra-contractual liability to you?  In any event, your odds just got better for successfully opposing a design professional's attempt to limit their liability to you by invoking a limitation of liability in their contract with an owner.  
  

• Now the bad.  Contractual limitations on liability, also called exculpatory clauses, are nearly always suspect.  Design professionals aren't the only ones in the construction industry who use them.  Chances are you use them too. If you don't, you'd like to.  Any case holding a limitation of liability unenforceable reinforces attacks on your own limitations of liability.  But by how much?
  You can distinguish this new case and its predecessors.  This case is based on two principal notions:
   
  
  • Professional service providers (e.g., architects, engineers, lawyers, accountants) owe their clients a duty to use reasonable care in providing their professional services to ensure their clients don't suffer economic loss (damages for things besides personal injury, death, and damage to other property).  This duty comes not from a professional service contract between the professional and the client.  Instead, it's imposed by the government - either the legislature in a statute or the judiciary in a case decision like this one.
  • Because this duty is imposed through the public institutions of the government, a professional can't privately limit this duty by using a limitation of liability in a their professional service contract. 
    
  The judges in this case suggest that there's something "special" in the professional-client relationship that makes it different from other commercial relationships.  And that warrants judges:
  
  
  • Imposing this duty on professionals instead of leaving professionals and clients to privately agree on it's breadth and depth in professional service contracts, and
  • Restricting professionals from privately limiting those duties too. 
  
  But you're a contractor.  And though you subscribe to a code of professionalism in your work, you aren't a professional service provider like an engineer or a lawyer.  So, you say, your relationship with your customers is substantively different.  Your duty to them comes solely from your contract, at least to the extent your Work when it doesn't injury or kill anyone or damage other property.  And because of that, judges shouldn't deny your right to limit your liability in that relationship as part of the private bargain you strike with your customer, whether they be an owner or another contractor.

• If you're an Owner. This case is good and bad for you. You've got more targets to focus on and they now have fewer defenses against your claims.  But as design professionals absorb this case, you might wind-up paying for it with higher design fees.  Higher because design professionals will want a bigger reward for the bigger risk you and your project pose.  And they need more money to offset higher premiums for professional errors and omissions liability insurance.  Or at least what some may suggest are higher premiums in the wake of this case.
  

• If you're an construction lender. This case is good and bad for you too. Your borrower has more design defect targets to focus on and fewer defenses to overcome.  That means the chances of loan funds or borrower equity going to repair or retrofit design defects may be lower, freeing up more money for the things you like (e.g., interest reserves).  But borrowers may need to pay higher design fees.  And that means you may need to loan out more principal that doesn't go into the dirt, the sticks, or the bricks.  Or your borrowers may need to devote more of their equity cash to paying for design services instead of expenses more likely to generate debt servicing cash flow, like sales promotions, amenities, and tenant improvements.
  

Conclusion 

This case should:

• Remind design professionals (their insurers and their lenders) that designers personally, not just their firms, are targets with one fewer line of defense against design defect claims.
• Remind contractors that they have better odds of avoiding a design professional's limitation of liability.  But others might attempt to use this case against contractors' own liability limitations.
• Remind owners and their lenders that limitations of liability in some design professional services contracts aren't enforceable. They don't shield the design firm or individual designers from malpractice claims.

• This is a Florida case applying Florida law.  It cuts down limitations of liability only to the extent Florida law applies to the dispute.  Keep that in mind when preparing the choice of law provision in your design service contracts.
• This case isn't final. 
  
• The Third District Court of Appeal could decide to re-hear it.  Yes, the Clippers could win the 2010 NBA Finals too.  But the individual consultant's lawyers will ask that court to re-hear this case regardless.
• Then the individual consultant's lawyer will probably appeal to the Florida Supreme Court.  The Supreme Court may decide to hear the case.  They might even reverse it.  I wouldn't bet any of my own money on it.  But they might.  I'll let you know here if they do.