EXCULPATORY PROVISIONS IN BUSINESS CONTRACTS

shutterstock_734837968-644x316An exculpatory provision in a contract is a provision that relieves one party from liability for damages.  It shifts the risk of an issue entirely to the other party.   Such a provision is generally drafted by the party preparing the contract that is looking to eliminate or disclaim liability associated with a particular risk, oftentimes a risk within their control.  These provisions are also known as limitation of liability provisions because they do exactly that — limit liability as to a risk.   For this reason, they can be useful provisions based on the context of certain risks, and are provisions that are included in business contracts (such as construction contracts).

 

While such clauses are disfavored, they are enforceable if they are drafted clearly, unambiguously, and unequivocally.  If they are unclear, ambiguous, or equivocal, they will construed against enforcement.  See Obsessions In Time, Inc. v. Jewelry Exchange Venture, LLP, 43 Fla.L.Weekly D1033a (Fla. 3d DCA 2018) (finding exculpatory clause in lease ambiguous and, therefore, unenforceable as to lessor looking to benefit from the exculpatory clause).   

 

Exculpatory clauses are enforceable only where and to the extent that the intention to be relieved from liability is made clear and unequivocal. The wording must be so clear and understandable that an ordinary and knowledgeable person will know what he is contracting away. A phrase in a contract is ambiguous when it is of uncertain meaning, and thus may be fairly understood in more ways than one.

Peterson v. Flare Fittings, Inc., 177 So.3d 651, 654 (Fla. 5th DCA 2015) quoting Tatman v. Space Coast Kennel Club, Inc., 27 So.3d 108, 110 (Fla. 5th DCA 2009). 

 

 

Because such clauses are disfavored and will be narrowly construed against the party who benefits from the clause, there are certainly public policy considerations that may come into play. See, e.g., Loewe v. Seagate Homes, Inc., 987 So.2d 758 (Fla. 5th DCA 2008) (exculpatory provision in agreement for purchase and construction of new home unenforceable to the extent it relieved homebuilder for an intentional tort and homebuilder could not contract around complying with building code). 

 

When negotiating a contract with an exculpatory provision in a contract, make sure you appreciate the risk associated with the clause.  The risk could be significant and outside of your control.  Make sure the provision is drafted in a clear, unequivocal. and unambiguous manner.  If you are dealing with such a provision after-the-fact, consult with counsel to best analyze arguments pertaining to the enforceability of that provision.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

THE INCLUSION OF LIMITATION OF LIABILITY PROVISIONS FOR DESIGN PROFESSIONALS

images-1Design professionals need to remember the benefit of newly enacted legislation effective July 2013 that authorizes a limitation of liability provision for design professionals in their individual capacity. Florida Statute s. 558.0035 authorizes a design professional to limit their personal liability if: (a) the professional’s company entered into the contract for professional services; (b) the contract does not name the professional as a party to the contract; (c) the contract provides in uppercase and at least 5 font points larger than the rest of the contract that an employee or agent of the professional’s company cannot be held individually liable in negligence, and (d) the professional’s company maintains professional liability insurance. See Fla. Stat. s. 558.0035 set forth below. Complying with this statute can limit a professional’s liability in an individual capacity for economic damages, although based on the language of the statute, it would not extend to personal injury or property damage not subject to the professional services contract.

 

When negotiating a contract for a design professional, it is good to include a limitation of liability provision to protect professionals working with the design professional company/ entity entering into the contract. I would include a provision identifying that it is specifically understood that employees or agents of the contracting party are not parties to the professional services contract. The reason being is many times professional services contracts will call out the specific professional(s) that is to act as the company’s representative or the professionals that will be performing the professional services. Additionally, I would include in uppercase and 5 font sizes larger than the balance of the text in the contract a provision to the effect: “PURSUANT TO FLORIDA STATUTE S. 558.0035, AN INDIVIDUAL EMPLOYEE OR AGENT OF_______ [CONTRACTING PARTY] MAY NOT BE HELD INDIVIDUALLY LIABLE IN NEGLIGENCE FOR ANY CLAIMS, DAMAGES, OR DISPUTES ARISING OUT OF AND SUBJECT TO THE CONTRACT.”

 

Although the statute provides that the limitation of liability provision does not apply to damages to personal injuries or property not subject to the contract, it does not define the circumstances in which this would apply. For instance, if a structure is deficiently engineered and a portion falls down or collapses and damages persons or property other than the structure itself, it would seem that the limitation of liability provision would not extend to these types of damages since the other property and personal injuries were not subject to the professional services contract. On the other hand, there could be the argument that these damages are subject to the professional services contract because they arose out of errors and omissions in the performance of professional service contractual obligations.

 

When negotiating a contract for an owner, the key is to ensure that the design professional has sufficient professional liability insurance based on the requirements of the project (i.e., sufficient insurance limits and potentially tail / extended reporting period coverage). An owner willing to agree to the limitation of liability provision could put a disclaimer that reflects that should the contracting party not continue its professional liability insurance for “x” years after the project’s completion with a date retroactive to the contract date or purchase tail coverage for the same period of time, the limitation of liability provision shall be deemed null and void.

 

Florida Statute s. 558.0035

(1) A design professional employed by a business entity or an agent of the business entity is not individually liable for damages resulting from negligence occurring within the course and scope of a professional services contract if:
(a) The contract is made between the business entity and a claimant or with another entity for the provision of professional services to the claimant;
(b) The contract does not name as a party to the contract the individual employee or agent who will perform the professional services;
(c) The contract includes a prominent statement, in uppercase font that is at least 5 point sizes larger than the rest of the text, that, pursuant to this section, an individual employee or agent may not be held individually liable for negligence;
(d) The business entity maintains any professional liability insurance required under the contract; and
(e) Any damages are solely economic in nature and the damages do not extend to personal injuries or property not subject to the contract.
(2) As used in this section, the term “business entity” means any corporation, limited liability company, partnership, limited partnership, proprietorship, firm, enterprise, franchise, association, self-employed individual, or trust, whether fictitiously named or not, doing business in this state.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.