By: Werner Sabo
A federal court in Georgia recently held that a limitation of liability provision in an engineer’s contract with the owner was effective and did not violate public policy. In US Nitrogen v. Weatherly, Inc., 2018 WL 4576053 (N.D. Georgia, Sept. 24, 2018), the owner hired the defendant engineer to design an ammonium nitrate solution plant. After construction was complete, the owner discovered cracks in the concrete foundations of the compressors used in the production of the ammonium nitrate solution. The engineer was notified and recommended several repairs or modifications. The owner then sought advice from other engineers and ultimately hired others to design and reconstruct the foundations. The owner subsequently sued the defendant in federal court, believing that the engineer was responsible for more than $30 million in costs and repairs.
The engineer moved for partial summary judgment and requested a ruling that the contract contains an enforceable limitation of liability provision, as follows:
Weatherly’s total aggregate liability to [USN], except with respect of Weatherly’s cost of performing the Work under the Contract, for all causes including defects, Weatherly defaults, default of any warranties, or guarantees, patent infringement, or otherwise, shall not exceed fifteen percent (15%) of the Price.
The owner first argued that the provision was contrary to public policy because Georgia has an anti-indemnification statute. The engineer argued that this was not an indemnification provision, but a simple limitation of damages provision that is enforceable under Georgia law. The court agreed with the engineer; the provision limits the engineer’s liability only to the owner, not third parties. On the other hand, an indemnification provision is intended to permit a party to shift its third-party liability for negligence to another party. Further, both parties here were sophisticated businesses. The language was a reasonable allocation of risk between these two parties and posed no public safety, health or welfare concerns as the engineer remained liable to third parties for any negligence or misconduct.
The owner then argued that the language was unclear, stating that the term “Price” was not defined. The court disagreed, finding the contract unambiguous; the contract contained a specific number for the anticipated price of the project ($14,692,000). The fact that the final cost was higher did not change the limit of liability ($2,203,800 –15% of the stated price).
Weatherly is in keeping with other recent cases upholding limitation of liability provisions in contracts between design professionals and owners. Design professionals should consider a reasonable provision to limit their risk exposure, particularly on larger projects.