Enforceability of Limitation of Liability Clauses
Author: Saloni Shah and Joanna Kopcyzk
Limitations of Liability
Alaska courts do not enforce limitation of liability clauses covering professionals in construction contracts. See City of Dillingham v. CH2M Hill N.W., Inc., 873 P.2d 1271, 1277-78 (Alaska 1994). In CH2M Hill N.W., Inc., the Supreme Court of Alaska ruled that an engineering firm contracting with the city could not limit its liability for its sole negligent acts or omissions, citing section 45.45.900 of the Alaska Code invalidating indemnification agreements. Section 45.45.900 prohibits any agreement affecting a construction contract that attempts to require a party to indemnify another for its sole negligence or willful misconduct. Alaska Stat. Ann. § 45.45.900 (West 2021). The court concluded that the statute applied to the limitation of liability clauses contained in professional services agreements, rendering them void and unenforceable. CH2M Hill N.W., Inc., 873 P.2d at 1277-78 (“[S]uch an interpretation best fulfills the legislature’s express intent to prevent a party to a construction contract from bargaining away liability for his or her own negligent acts.”) Similarly, the court in Municipality of Anchorage v. Integrated Concepts & Research Corp., No. 3:13-cv-00063, 2016 WL 7109098 (D. Alaska Dec. 5, 2016) held that Alaska law imposes an independent duty on design professionals, regardless of the contractual allocation of liability among the various parties. Id. at *3.
Parties to sales contracts may limit or modify remedies and warranties. Alaska Stat. Ann. §§ 45.02.316, 45.02.719 (West 2021).
As with limitations of liability, Alaska courts disfavor exculpatory provisions. Courts prohibit such clauses when businesses impose them on consumers contrary to a public interest. Uncle Joe’s Inc. v. L.M. Berry & Co., 156 P.3d 1113, 1117 n.4 (Alaska 2007). Alaska courts examine six factors to determine if an exculpatory clause is contrary to a public interest: (1) whether the transaction concerns a business generally thought suitable for public regulation; (2) whether the party seeking exculpation is engaged in performing a service of great importance to the public that is frequently “a matter of practical necessity for some members of the public;” (3) whether the party holds itself out as willing to perform this service for any member of the public, or those within established criteria; (4) whether the party has the advantage of bargaining strength against a member of the public due to the essential nature of the service; (5) whether the party presents the public with a standardized adhesion contract; and (6) whether, as a result of the transaction, the person or property of the purchasers is placed under the control of the seller, subjecting it to risk of carelessness by the seller. Municipality of Anchorage v. Locker, 723 P.2d 1261, 1265 (Alaska 1986) (quoting Tunkl v. Regents of the Univ. of Cal, 383 P.2d 441, 445 (Cal. 1963)). An exculpatory clause will be found unconscionable and against public policy when considering all of the circumstances surrounding the making of a contract if “those circumstances indicate a vast disparity of bargaining power coupled with terms unreasonably favorable to the stronger party.” Id. at 1265-66 (citing Vochner v. Erickson, 712 P.2d 379, 381-83 (Alaska 1986)).
Alaska Stat. Ann. § 45.45.900 (West 2021) invalidates indemnification agreements in construction contracts that purport to indemnify the promisee against liability for damages for: (1) death or bodily injury to persons; (2) injury to property; (3) design defects; or (4) other loss, damage or expense arising under (1), (2), or (3) from the sole negligence or willful misconduct of the promisee or the promisee’s agents, servants, or independent contractors. Section 45.45.900 only invalidates clauses that purport to indemnify the indemnitee for the indemnitee’s sole negligence. Hoffman Constr. Co. v. U.S. Fabrication & Erection, Inc., 32 P.3d 346, 354 (Alaska 2001); Rogers & Babler, Div. of MAPCO ALASKA, Inc. v. State of Alaska, 713 P.2d 795, 798 (Alaska 1986) (“We are not inclined to accept a reading of the statute that would invalidate the indemnity provisions of every contract entered into between the state and construction contractors. . . . We think AS 45.45.900 should come into effect only when it is determined, as between the state and the contractors, that the state is solely negligent.”). Section 45.45.900 likely applies to indemnity clauses in equipment lease agreements. Aetna Cas. & Sur. Co. v. Marion Equip. Co., 894 P.2d 664, 668-69 (Alaska 1995). Section 45.45.900 also applies to limitation of liability provisions. CH2M Hill N.W., Inc., 873 P.2d at 1277-78.
Enforceability of Waiver of Consequential Damages Clauses
Alaska courts have not directly addressed the enforcement of waiver of consequential damages clauses in the construction context, but it appears that they may likely enforce such clauses. Generally, Alaska courts recognize that parties are free to enter into contracts that contain clauses addressing the apportionment of damages in the event of breach or default. See, e.g., N. Pacific Erectors, Inc. v. State, Dept. of Admin. 337 P.3d 495, 507 (Alaska 2013) (citation omitted) (holding that “[p]arties are free to enter into contracts that contain provisions that apportion damages” and “may agree to a particular measure of damages in the event of a breach”); Indus. Indem. Co. v. Wick Const. Co., 680 P.2d 1100, 1104 (Alaska 1984) (enforcing liquidated damages provision in prime contract that was passed through to a subcontract as a limitation of damages in the contractor’s claims against the subcontractor).
In the context of transactions for the sale of goods, the Alaska Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances. See Alaska Stat. §§ 45.02.711 – 45.02.714, 45.02.715. However, Alaska code section 45.02.719 permits the buyer and the seller to contract to limit or exclude consequential damages unless the limitation or exclusion is found to be unconscionable or where the circumstances cause the contractually specified limited or exclusive remedy to fail of its essential purpose. For example, in Pierce v. Catalina Yachts, Inc., 2 P.3d 618, 624 n.31 (Alaska 2000), the court provided: “We need not decide whether the trial court correctly decided that [defendant company’s] inclusion of the consequential damages waiver in its standard limited warranty was not, in itself, unconscionable … [W]e assume for purposes of this decision that the waiver, standing alone, was conscionable.” However, the court remanded for a trial to determine consequential damages, notwithstanding an express provision in the warranty barring recovery thereof, because defendant “acted in bad faith when it breached the warranty,” thus, causing the limited remedy to fail of its essential purpose. Id. at 619 & 624. The court explained: “[C]ourts are more likely to find unconscionability [with respect to a contractual provision limiting remedies and/or excluding consequential damages] when a consumer is involved, when there is a disparity in bargaining power, and when the consequential damages clause is on a pre-printed form….” Id. at 623. The court further noted that “conversely, [courts] are unlikely to find unconscionability when “such a limitation is freely negotiated between sophisticated parties, which will most likely occur in a commercial setting….” Id. Thus, the Alaska Supreme Court has demonstrated that it will recognize waiver of consequential damages provisions as conscionable and enforce them unless they are deemed unconscionable under the particular circumstances of the case.
Application of Economic Loss Doctrine
The default rule in Alaska is that “promises set forth in a contract must be enforced by an action on that contract.” Jarvis v. Ensminger, 134 P.3d 353, 363 (Alaska 2006). “Only where the duty breached is one imposed by law, such as a traditional tort law duty furthering social policy, may an action between contracting parties sound in tort.” Id. “[W]hen a party’s actions violate a general duty of care, its actions may give rise to an action in tort, even if the violation also breaches a contract.” Id.
Once a plaintiff establishes a violation of a “general duty of care,” Alaska courts permit recovery for purely economic losses in tort so long as the plaintiff shows that “the defendants knew or reasonably should have foreseen both that particular plaintiffs or an identifiable class of plaintiffs were at risk and that ascertainable economic damages would ensue from the conduct.” Mattingly v. Sheldon Jackson Coll., 743 P.2d 356, 360 (Alaska 1987). “Thus, knowledge or special reason to know of the consequences of the tortious conduct in terms of the persons likely to be victimized and the nature of the damages likely to be suffered will suffice to impose a duty upon the tortfeasor not to interfere with economic well-being of third parties.” Id.
The holding in Mattingly should not be taken too far, however. The Supreme Court of Alaska has cautioned that the foreseeability of harm to a plaintiff or class of plaintiffs does not itself establish the duty of care; it only gives rise to a potential recovery of damages for economic loss. See Geotek Alaska, Inc. v. Jacobs Eng’g Group, Inc., 354 P.3d 368, 377 (Alaska 2015) (holding that Mattingly does not create “a new duty in tort,” but instead “simply expanded liability in tort to include purely economic losses”). Furthermore, the United States District Court for the District of Alaska has interpreted Alaska’s independent duty exception in Mattingly to be limited to cases where “the breach of duty created a risk of personal injury or property damage.” See St. Denis, 900 F. Supp. at 1203 (citing the Restatement (Second) Torts § 323, which addresses negligent services to others gratuitously or for consideration); see also U.S. ex rel. N. Star Terminal & Stevedore Co. v. Nugget Constr., Inc., 445 F. Supp. 2d 1063, 1076 (D. Alaska 2006) (“Mattingly . . . stands for the proposition that a party that is only economically injured can nonetheless sue for negligence, so long as a duty exists. It defines the parameters of an existing duty and does not . . . impose a new duty where there otherwise would be none.”); In re Target Corp. Data Sec. Breach Litig., 66 F. Supp. 3d 1154, 1172 (D. Minn. 2014) (“Alaska law recognizes negligence claims only if the breach of duty created a risk of personal injury or property damage.”).
Alaska law also recognizes that persons have a general duty of care to refrain from the tort of misrepresentation. Jarvis, 134 P.3d at 363. Accordingly, plaintiffs may assert claims for both breach of contract and for misrepresentation because the latter arises from a breach of a duty independent from the contractual duty. Id.
In State for Use of Smith v. Tyonek Timber, Inc , 680 P.2d 1148 (Alaska 1984), a concrete subcontractor brought a negligence action seeking solely economic loss recovery against a concrete supplier with which the subcontractor was not in privity. The subcontractor argued that a tort claim “should extend to purely economic harm sustained by one not in privity with the supplier of a defective product.” Id. at 1151. The Alaska Supreme Court disagreed and held that the plaintiff’s “lack of privity with [the defendant] precludes his recovery for pure economic loss based upon a negligence theory.” Id. at 1154. It should be noted that the U.S. District Court for the District of Alaska implicitly challenged the continuing validity of Smith in light of the subsequent Mattingly decision. S. Peninsula Hosp. v. Xerox State Healthcare LLC, 223 F. Supp. 3d 929, 939–40 (D. Alaska 2016) (citing Mattingly in rejecting the defendant’s argument, which was based upon Smith).
Generally, Alaska courts have denied relief to plaintiffs seeking strict liability recovery for economic loss unconnected to a physical or proprietary injury. See Kodiak Elec. Ass’n, Inc. v. Delaval Turbine, Inc., 694 P.2d 150, 153 (Alaska 1984) (quoting Morrow v. New Moon Homes, 548 P.2d 279, 286 (Alaska 1976)) (“In order to prevail on a claim of strict liability in tort when no personal injury has occurred, the plaintiff must show ‘property damage’ as opposed to mere ‘economic loss.’”); see also Cloud v. Kit Mfg. Co., 563 P.2d 248, 250-51 (Alaska 1977) (holding tort action appropriate where other property damage in fire was caused by defective rug padding); St. Denis v. Dep’t of Hous. & Urban Dev., 900 F. Supp. 1194, 1200 (D. Alaska 1995) (citations omitted) (“[T]he Alaska [economic loss] rule [is] … that a plaintiff who claims that a product was defective and seeks only damages for economic loss must sue on the contract and has no independent action in tort unless she can show that the defect created a significant risk of personal injury or property damage.”).
Alaska courts do not apply the economic loss doctrine to bar tort recovery where “a defective product creates a situation potentially dangerous to persons or other property, and loss occurs as a result of that danger,” stating that in such a situation “strict liability in tort is an appropriate theory of recovery, even though the damage is confined to the product itself.” Northern Power & Eng’g Corp. v. Caterpillar Tractor Co., 623 P.2d 324, 329 (Alaska 1981) (declining to apply the dangerous situation exception to the economic loss rule where an engine seized due to lack of “evidence in the record that such a defect presented a danger to persons or other property and no evidence of violence, fire, collision with external objects, or other calamity as a result of this failure.”); see also Pratt & Whitney Canada, Inc., 852 P.2d 1173, 1179-81 (Alaska 1993) (reaffirming the “intermediate approach” of Northern Power decision after the U.S. Supreme Court’s decision in East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858 (1986)). For the purposes of this analysis, the definition of “other property” does not include components that are “provided by one supplier as part of a complete and integrated package.” Northern Power, 623 P.2d at 330. However, where “components are sold separately or are provided by different suppliers” the argument that the system is made up of separate “other” property pieces “may have some validity.” Id.
Recently, in the context of a construction contract, the federal district court in Alaska found that the dangerous situation exception did not extend as far as to apply to project design flaws revealed during a natural disaster. Municipality of Anchorage v. Integrated Concepts & Research Corp., No. 3:13-CV-00063-SLG, 2016 WL 6471010, at *6 (D. Alaska Oct. 31, 2016) (“[T]he Court concludes that allowing economic loss recovery solely on proof that a design defect in the Project could endanger persons or property during a major earthquake at some point in the future is too speculative.”).
Tort Liability for Professionals Despite Contractual Relationship
The Supreme Court of Alaska has also held that “a project owner may sue a design professional in tort for economic losses arising from the professional’s malpractice, despite the existence of a contractual relationship between the parties.” Dep’t of Natural Resources v. Transamerica Premier Ins. Co., 856 P.2d 766, 772 (Alaska 1993). This is because “the duty of professional care is one that the law imposes, not the contract.” Id. However, the Court in Transamerica also stated that this common law duty does not apply to project owners, who only “owe purely contractual duties as to the accuracy of designs.” Id. “When providing plans and specifications to a contractor, an owner makes an implied warranty that they will be sufficient for their particular purpose.” Id. (citing Fairbanks N. Star Borough v. Kandik Constr., Inc. & Assocs., 795 P.2d 793, 797 (Alaska 1990), vacated in part on other grounds, 823 P.2d 632 (Alaska 1974)). Therefore, a party may not enforce the implied warranty against the project owner in tort because it was bargained for in the contract, “even if the owner negligently provides defective plans and specifications, which cause economic loss to the contractor in the course of performance.” Id. at 773.
In 2010, the federal district court in Alaska challenged the continuing validity of the Transamerica decision. Comparing Transamerica to the decision in Pedersen v. Flannery, 863 P.2d 856 (Alaska 1993), the district court in Cape Fox Corp. v. Jackson, 2010 WL 3951988 (D. Alaska Oct. 7, 2010) held that “[Pedersen] announced the contrary principal that professional malpractice claims seeking solely economic damages sound in contract, not tort.” 2010 WL 3951988 at *4. The district court resolved the “apparent dissonance” between Transamerica and Pedersen by holding that professional malpractice claims sound in contract. Id. The district court is correct in stating that there is some conflict between Transamerica and Pedersen. However, given that Pedersen did not expressly overrule Transamerica, it is not clear that an Alaska court would come to the same conclusion as the court in Cape Fox, and Transamerica technically remains good law.
Enforceability of No Damages for Delay Clauses
No Alaska courts have addressed the enforceability of no damages for delay clauses.
Strict Interpretation of Contract
When interpreting a contract, the Alaska courts’ duty is to “ascertain and give effect to the reasonable intentions of the contracting parties.” Flint Hills Resources Alaska, LLC v. Williams Alaska Petroleum, Inc., 377 P.3d 959, 970 (Alaska 2016) (quoting Estate of Polushkin ex rel. Polushkin v. Maw, 170 P.3d 162, 167 (Alaska 2007)); see also Best v. Fairbanks North Star Borough, 493 P.3d 868, 873 (Alaska 2021). The courts determine the parties’ reasonable intentions by “resort[ing] to the language of the disputed provision and other provisions, relevant extrinsic evidence, and case law interpreting similar provisions.” Polushkin, 170 P.3d at 167 (quoting W. Pioneer, Inc. v. Harbor Enters., Inc., 818 P.2d 654, 656 (Alaska 1991)). It is not necessary to find that an agreement is ambiguous before looking to extrinsic evidence as an aid in determining what it means. Miller v. Fowler, 424 P.3d 306, 313 (Alaska 2019) (quoting Nautilus Marine Enterprises, Inc. v. Exxon Mobil Corp., 305 P.3d 309, 316-17 (Alaska 2013); see also Alyeska Pipeline Serv. Co. v. O’Kelley, 645 P.2d 767, 771 (Alaska 1982) (“[A] court . . . may initially turn to extrinsic evidence in construing a contract.”)). “Typically, in resolving disputes concerning … an agreement, we begin by viewing the contract as a whole and the extrinsic evidence surrounding the disputed terms, in order to determine if those terms are ambiguous—that is, if they are reasonably subject to differing interpretation, and if those differing interpretations are both reasonable.” Zamarello v. Reges, 321 P.3d 387, 393–94 (Alaska 2014) (citing Weiner v. Burr, Pease & Kurtz, P.C., 221 P.3d 1, 9 (Alaska 2009)). Alaska courts will depart from the plain language of the contract only if the contract language is ambiguous. Williams v. Crawford, 982 P.2d 250, 253 (Alaska 1999). A contract is ambiguous only if, when taken as a whole, it is reasonably subject to differing interpretations. Id.
Prompt Payment Requirements (Public/Private)
Alaska Public –
Alaska Stat. §§ 36.90.200 to .210 (2022) (owner to prime 30 days after payment request; but if the political subdivision is planning to use grant money, 21 days from later of invoice date or political entity’s actual receipt of grant money; prime to sub/sub to lower tiers 8 working days after payment; interest at 10.5% per annum, accruing from the 21st day after payment is due for payments to the prime or accruing from the date due for the lower tiers).
Alaska Private – N/A
False Claims Statute
Federal False Claims Act – 31 U.S.C. § 3729-3733 –
Many states have enacted false claims statutes modeled on the federal False Claims Act (referenced as the “FCA” throughout this survey). 31 U.S.C. §§ 3729-3733. State analogues to the FCA aim to address claims involving state and local governments instead of the federal government. This summary identifies the FCA’s state analogues for construction claims. It does not address false claims statutes for other subjects, such as health care claims, applications for public assistance, or insurance claims.
The FCA defines “claim” as any request or demand for money or property where the government will provide or reimburse any portion of that money or property. Id. § 3729(b)(2). The FCA imposes civil liability for any of seven separate acts including: 1) knowingly presenting a false claim for payment; 2) knowingly making a false record or statement to obtain approval of a claim; 3) conspiring to obtain approval of a false claim; 4) knowingly delivering less than the amount of money or property owed to the government; 5) delivering a receipt for government property without knowledge of the receipt’s veracity and with intent to defraud; 6) knowingly purchasing or receiving public property from a government employee or member of the Armed Forces illegally; and 7) knowingly making or using a false record or statement to decrease a payment obligation to the government. Id. § 3729(a)(1).
A person found guilty of any of the above acts is liable to the government for: 1) a civil penalty between $5,000 and $10,000, as adjusted by inflation; 2) three times the amount of damage sustained by the government; and 3) the costs of a civil action brought to recover damages sustained by the government. Id. § 3729(a)(1-3). The FCA, however, allows mitigation of the penalty if the violator cooperates with the government’s investigation. Courts may reduce the violator’s liability to two times the amount of damage sustained by the government when the violator: 1) provides all of the information known about that violation to the investigative team within 30 days of gaining such knowledge; 2) provides the information without actual knowledge of the investigation and before the government files charges; and 3) fully cooperates with the government’s investigation. Id. § 3729(a)(2).
Alaska – N/A
Licensing Requirements for Construction Managers
Alaska regulations do not require specific licenses for construction managers, but the work performed by construction managers often mirrors many of the same functions as contractors. Thus, construction managers must be familiar with contractor licensing requirements and/or consider becoming licensed as a contractor in Alaska. Contractors in Alaska are regulated under the state’s Department of Commerce, Community, and Economic Development’s Division of Corporations, Business and Professional Licensing. Before performing work, a contractor must obtain a “certificate of registration” as well as an Alaska business license detailing, among other things, the primary and secondary line of business to be conducted. Alaska Stat. Ann. § 08.18.011; § 43.70.020.