Limitations of Liability: Why Are They Important?
Limitations of Liability: Why Are They Important?
Architects and design professionals assume risk related to a variety issues by providing professional services on a project. Most design professionals carry professional insurance to guard against such liability; however, there is always a question that design professionals have to ask themselves: “Is my professional liability insurance enough?”
Rather than rely exclusively on professional liability insurance, one tool an architect can use to guard against risk is the inclusion of a limitation of liability clause in all their client contracts. Such a provision caps the architect’s potential exposure for a claim, frequently at the amount of their fee or to the extent of their available insurance coverage.
Enforceability of Limitation of Liability Clauses
The enforceability of a limitation of liability clause generally depends in large part on two main factors: (1) the drafting and wording of the clause and (2) the jurisdiction where the clause is being enforced. As it relates to the first issue, many courts will narrowly read limitation of liability provisions so that they are applied only to those specific claims/issues described in the provision. As it relates to the second issue, each state’s law related to limitations of liability varies, so what may be enforceable in Maryland may not be enforceable in another state (should you find yourself working on a project elsewhere).
Maryland Limitation of Liability
In Maryland, one the main cases dealing with limitations of liability was a 1996 case involving a real estate lock box agreement. In Adloo v. H.T. Brown Real Estate, the court said the standard for examining the drafting and wording of a limitation of liability clause is a “stringent and exacting one, under which the clause must not simply be unambiguous but also understandable.”
The Maryland Court of Appeals also laid out the several circumstances where a limitation of liability would not be valid. First, a limitation of liability will not be enforceable when the party seeking enforcement intentionally caused harm or was grossly negligent. Next, the court said a limitation of liability could not be enforced when there is “grossly unequal bargaining power.” Finally, the court stated that a limitation of liability clause would not be valid when the transaction adversely affects the public interests. In other words, under Maryland law, not all limitations of liability provisions will be enforced in all situations.
Conclusion
By including a limitation of liability provision in their contract, the prudent architect confirms the parties’ respective expectations related to the architect’s potential exposure to the services provided. By including a limitation of liability provision, an architect is able to provide pricing for their services which accounts for the architect’s potential liability in a transparent manner. As such, it is prudent for architects to include limitations of liability provisions which identify both the amount of the “cap” on liability and what types of claims are covered by the clause.
Courtesy of Cooper A. Littlejohn, Esq., a lawyer with Lee/Shoemaker PLLC, a law firm devoted to the representation of design professionals in all facets of their business. Lee/Shoemaker PLLC is an Allied Member of AIA Potomac Valley.
This article is intended to provide general legal advice and should not be relied on for specific situations. Consult your attorney for specific legal advice applicable to your situation.
