How Enforceable Are Limitations of Liability: Something a Contractor, Architect, and Engineer Would Like to Know
How enforceable are contractual limitations of liability? According to a panel of Illinois judges recently: very enforceable. Their decision: Zerjal v. Daech & Bauer Construction, Inc. (PDF)
Summary: Zerjal v. Daech & Bauer Construction, Inc.
This decision concerns the limitation of liability in a home inspector’s contract. But the principles involved affect building contractors, architects, engineers, other professionals, and anyone else who would also like to contractually limit their exposure. And it's all the more compelling because these judges enforce the limitation not against a Fortune 100 company, but against that most sacred of judicially protected constituencies: the homeowner.
In enforcing the limitation, the judges hold that contractually capping liability to a refund of fees paid:
- Isn't “unconscionable,” and
- Doesn’t violate “public policy"
Limitation of Liability Tips for Contractors, Architects, Engineers, Owners, and Everyone Else Too
- Limitations of liability are usually suspect. Judges in some states just refuse to enforce them. And judges in the states that will enforce usually impose rigorous requirements before they do. The result: limitations of liability are like structural joints, a weak point that needs careful and often intense reinforcement. That reinforcement is one of those things my colleagues and I devote a lot of effort and ingenuity to
- If you're on the other side submitting to a limitation of liability, be sure you understand how much risk you're really taking. Do you really appreciate how limited your recourse will be if things go badly? If that limit still doesn't sit right with you (not to mention your management, board, investors, and lenders), there are alternatives. Considering those alternatives, negotiating limit changes, and carving out exemptions is another thing my colleagues devote a lot of effort and ingenuity to as well
Construction Law Today is a legal blog about construction contracts, disputes, finance, and the people whose job it is to deal with them.
Great thoughts! Thanks for your post. It's really helpful.