Yesterday, Florida’s Third District Court of Appeals sitting in Miami issued their opinion in Witt v. La Gorce Country Club, Inc. holding that a limitation of liability in a consultant’s professional services contract is unenforceable.
La Gorce Country Club, Inc. (the "owner") wanted to improve the irrigation of their golf course using reverse osmosis. They hired the geology firm of Gerhardt M. Witt and Associates, Inc. (the "consulting firm") to consult on designing and installing a reverse osmosis system. Consulting firm principal, Gerhardt Witt (the "individual consultant"), personally provided the consulting firm’s services to the owner.
The consulting contract between the consulting firm and the owner included a limitation of liability clause limiting the consulting firm’s liability, not just for breach of the consulting contract, but for other, non-contractual claims as well (e.g., professional malpractice, a/k/a negligently providing professional services. Here’s the entire limitation of liability:
In recognition of the relative risks and benefits of the project to both the owner and the consulting firm, the risks have been allocated such that the owner agrees, to the fullest extent permitted by law, to limit the liability of the consulting firm and its subconsultants to the total dollar amount of the approved portions of the scope for the project for any and all claims, losses, costs, damages of any nature whatsoever or claims expenses from any cause or causes, so that the total aggregate liability of the consulting firm and its subconsultants to all those named shall not exceed the total dollar amount of the approved portions of the Scope or the consultant’s total fee for services rendered on this project, whichever is greater. Such claims and causes include, but are not limited to, negligence, professional errors or omissions, strict liability, breach of contract or warranty.
The reverse osmosis project encountered problems while work was still in progress. Within 14 months after completion, it didn’t work at all. The owner sued the consulting firm and the individual consultant alleging several types of claims. The one that concerns us the is the owner’s claim for professional malpractice.
The case went to trial. A special judge deciding the case found both (1) the the consulting firm and (2) the the individual consultant liable for professional malpractice. He awarded about $4,000,000 to the owner.
The consulting firm and the individual consultant defended saying that their liability should be limited under the consulting contract’s limitation of liability. The special judge disagreed, at least regarding the individual consultant. His reasons:
- The individual consultant was not a party to the consulting contract, so the limitation of liability didn’t limit his liability.
- Regardless of whether the consulting contract did apply to the individual consultant’s liability, the limitation of liability is unenforceable under Florida law.
The individual consultant appealed.
- The judges didn’t address the issue of whether the consulting contract’s limitation of liability applies to the individual consultant. I don’t know why. Maybe the individual consultant didn’t argue the issue on appeal. He probably could have by contending:
- He qualified as a subconsultant of the consulting firm that the limitation says it applies to.
- He is an intended third-party beneficiary of the consulting contract’s limitation of liability. That would have been easier if he’d added language specifically identifying himself and his colleagues at the consulting firm as intended third-party beneficiaries of the limitation. As the consulting firm’s principal owner, he probably could have asked the firm’s lawyer to do that. The limitation is already such a prolix burden to read that an extra line or two wouldn’t have made it that much worse either. If he wanted to be really audacious, the individual consultant could have even insisted the lawyer spare readers eyes by adding the third-party beneficiary language as a completely separate sentence.
But the court of appeals opinion does not tell us whether the individual consultant ever raised these arguments at trial or on appeal. But, as you’ll read below, it wouldn’t have mattered anyway.
- The judges held that a contractual limitation of professional malpractice liability is unenforceable under Florida law, at least by an individual professional. So even if the limitation of liability extends to cover the individual consultant as well as the consulting firm, it won’t help him. Why?
- Here’s an adapted extract of what the judges said:
By allowing a professional negligence claim against an individual and finding that the economic loss rule does not preclude such a claim, the Florida Supreme Court implicitly acknowledged that claims of professional negligence operate outside of the contract. Because a professional negligence claim exists and operates outside of a professional services contract, it would be inapposite to limit such a remedy to the confines of the very document outside of which it was intended to operate.
A cause of action in negligence against an individual professional exists irrespective, and essentially, independent of a professional services agreement. Therefore, we find that the limitation of liability provision was, as a matter of law, invalid and unenforceable as to the individual consultant.
- The judges’ observed from previous Florida Supreme Court cases on the economic loss rule (Moransais v Heathman and Indemnity Insurance Co. of North America v. American Aviation, Inc.) that a professional’s duty to use reasonable care when providing their services (i.e., their duty to avoid negligence in providing their services) is "extra-contractual". Said another way, that duty is imposed not by the contract between the professional and their client, but by some other source. The only source I can find is the one operating in this case – the judicial branch of government. The judges’ reasoning in this case then suggests that private contractual terms can’t (1) limit duties that the judicial branch of government imposes on professionals or (2) their client’s remedies for violating those duties.
Based on this holding, the judges affirmed the special judge’s decision. But this probably isn’t the last we’ll hear of this case. My money is on the individual consultant (and his professional errors and omissions liability insurer if he has one) appealing this decision to the Florida Supreme Court. We’ll stand-by to see whether the Supreme Court decides to hear the case.
In an upcoming post we’ll talk about how this case could affect you.