• Georgia Supreme Court Rules That Limitation of Liability Clause in Engineer's Contract Is Unenforceable Under Statute Restricting Indemnity Provisions in Construction Contracts
  • August 19, 2008 | Authors: Randall F. Hafer; R. Lee Mann; Hayley R. Ambler
  • Law Firm: Kilpatrick Stockton LLP - Atlanta Office
  • O.C.G.A. § 13-8-2 invalidates any provision in a construction contract by which a party indemnifies or holds harmless another party for bodily injury or property damage caused by the other party’s sole negligence. On June 30, 2008, the Georgia Supreme Court held that a limitation of liability provision in an engineering firm’s contract was unenforceable under O.C.G.A. § 13-8-2, even though the provision purported only to limit the engineering firm’s liability and did not require either party to indemnify or hold harmless the other. Thus, the engineering firm’s liability was not limited to the amount of its fee.

    In Lanier at McEver, L.P. v. Planners and Engineers Collaborative, Inc., 2008 WL 2579237, No. S07G1424 (Ga. June 30, 2008), the plaintiff developer had contracted with an engineering firm to design a storm-water drainage system for a 220-unit apartment complex. After the apartment complex was completed, the developer discovered erosion and other physical damage. An expert attributed the erosion and physical damage to the engineering firm’s negligence in designing the complex’s storm-water drainage system. The developer spent $250,000 in repairs and expected to spend a total of $500,000 to complete them. The developer sued the engineering firm to recoup its losses.

    The engineering firm moved for partial summary judgment based on a contract provision that limited the engineering firm’s liability to its fee of $80,514. The clause provided:

    In recognition of the relative tasks and benefits of the project both to [the developer] and [the engineering firm], the risks have been allocated such that [developer] agrees, to the fullest extent permitted by law, to limit the liability of [engineering firm] and its sub-consultants to [developer] and to all construction contractors and subcontractors on the project or any third parties for any and all claims, losses, costs, damages of any nature whatsoever[,] or claims expenses from any cause or causes, including attorneys’ fees and costs and expert witness fees and costs, so that the total aggregate liability of [engineering firm] and its subconsultants to all those named shall not exceed [engineering firm’s] total fee for services rendered on this project. It is intended that this limitation apply to any and all liability or cause of action however alleged or arising, unless otherwise prohibited by law.

    (Emphasis added.) The trial court granted the engineering firm’s motion for partial summary judgment, and the Court of Appeals affirmed. The Georgia Supreme Court granted the developer’s petition for certiorari to determine whether this limitation of liability clause in the parties’ construction contract violated O.C.G.A. § 13-8-2(b).

    The Georgia Supreme Court ruled that the limitation of liability provision violated Georgia’s public policy as stated in O.C.G.A. § 13-8-2(b). When the parties entered into the contract,[1] O.C.G.A. § 13-8-2(b) provided that an agreement “in connection with or collateral to” a construction project, “purporting to indemnify or hold harmless the promisee against liability for damages arising out of bodily injury to persons or damage to property caused by or resulting from the sole negligence of the promisee . . . is against public policy and is void and unenforceable . . .”

    The Court noted that the purpose of O.C.G.A. § 13-8-2 “is to prevent a building contractor, subcontractor, or owner from contracting away liability for accidents caused solely by his negligence, whether during the construction of the building or after the structure is completed and occupied.” 2008 WL 2579237, *2. Although the limitation of liability clause at issue in Lanier did not use the specific words “indemnify” or “hold harmless,” the Court found that the clause had the effect of an indemnity or hold harmless provision because it shifted all liability above the firm’s fee to the developer “no matter the origin of the claim or who is at fault.” Id. The Court was particularly concerned that the developer could be held liable for claims by third-parties for injures due solely to the engineering firm’s negligence. The Court stated that “[n]othing in O.C.G.A. 13-8-2(b) permits a construction party to shift its third-party liability for its sole negligence to another contractor, no matter how savvy the parties or how high the damages cap.” Id.

    The Georgia Supreme Court’s decision in Lanier could have far-reaching consequences for limitation of liability provisions in construction contracts, even when the provisions do not state that they are indemnification or hold harmless provisions. Parties must carefully draft their contracts so they do not violate O.C.G.A. § 13-8-2(b) and should review their current contracts to evaluate any risk created by the Court’s decision.

    [1] As noted in our Legal Alert of July 6, 2008, O.C.G.A. § 13-8-2(b) was amended in July 2007 to also invalidate provisions requiring a party to insure another for bodily injury or property damage arising from its sole negligence, with some exceptions. This amendment should not affect the court’s ruling in Lanier.