Limitation of Liability in a Contract for Design Professionals
A limitation of liability provision in a contract is one in which a Design Professional and client agree to limits the liability of the Design Professional. It is common to have a specific dollar amount, insurance limits or particular types of damages stated in the limitation of liability clause. Here are a few examples of limitation of liability:
-the amount shall not exceed the total compensation received by Design Professional under this Agreement.
-shall not to exceed the total amount of $_________.
-should not exceed the total sum paid on behalf of or to the Design Professional by its insurers in settlement or satisfaction of Owner’s claims under the Terms and Conditions of the Design Professional’s insurance policies applicable thereto.
-shall not exceed the total compensation received by Design Professionals under this Agreement, or the sum of $_________, whichever is greater.
For a limit of liability clause to be effective and enforceable it should meet the following criteria.
-The language must be clear and unambiguous
-The types of risk must be clearly defined
-It must show that parties bargained freely on the clause
-Bargaining strength of parties must be relatively equal
-The risk must be logical in relation to the reward.
It is important that you communicate with your client that the limit of liability clause does not limit the responsibility of your firm to meet the standard of care. Additionally, the limit of liability clause should be looked at on a case by case basis of the project. Some project owners may even look to strike the clause, but this can be addressed in negotiations.
Please be sure to discuss the limit of liability clause with your attorney to determine what will work best for your firm in the contract.