Enforceability of Limitation of Liability Clauses
Author: Saloni Shah and Joanna Kopcyzk
Limitation of Liability
Connecticut courts generally uphold limitations of liability, reasoning that “[i]f the language of the agreement discloses that the parties intended to limit the remedies to those stated, the agreement will be enforced and the party will be limited to the exclusive remedies outlined in the agreement.” Shawmut Bank Conn., N.A., v. Conn. Limousine Serv., Inc., 670 A.2d 880, 885 (Conn. App. Ct. 1996); see also Eaton v. New Haven Parking Auth., No. CV-98-0414512-S, 2000 WL 1023217, at *2-3 (Conn. Super. Ct. Apr. 12, 2000) (recognizing a limitation of liability in a maintenance contract). These clauses are ineffective when a party acts fraudulently or in bad faith. New England Variety Distribs. Inc. v. Alarm Sec. Prot. Co., No. CV-95-0545381, 1998 WL 712363, at *3 (Conn. Super. Ct. Sept. 25, 1998).
Pursuant to Conn. Gen. Stat. Ann. § 10-290e(a) (West 2021), a contract between an independent consultant providing architectural services and a town or regional school district may not contain a provision that limits the liability of the consultant for errors and omissions relating to its work.
Under Conn. Gen. Stat. Ann. § 42a-2-719(1)-(3) (West 2021), parties may also contractually limit remedies in sales contracts as long as the limitation serves its essential purpose and is not unconscionable. See also Latham & Assocs., Inc. v. William Raveis Real Estate, Inc., 589 A.2d 337, 343 (Conn. 1991).
Connecticut courts permit, but disfavor exculpatory clauses; typically only enforcing such clauses when “expressed in unmistakable language.” Hanks v. Powder Ridge Rest. Corp., 885 A.2d 734, 739 (Conn. 2005). The purpose of express language is to ensure individuals do not inadvertently relinquish valuable legal rights. Id. at 738.
Even when expressed in unmistakable language, Connecticut courts allow for exceptions to exculpatory clauses in construction contracts. C&H Elec., Inc. v. Town of Bethel, 96 A.3d 477, 493-94 (Conn. 2014). To establish an exception, a contractor must prove that an owner violated a truly fundamental contract provision and not merely an ordinary breach. There must be a breach of a fundamental, affirmative obligation, such as when the owner fails to obtain title to the site work or otherwise make it available to the contractor so construction may begin. Id. at 494.
Conn. Gen. Stat. Ann. § 52-572k (West 2021), prohibits construction contract provisions purporting to indemnify or hold harmless the promisee against liability for damages arising out of the promisee’s negligence. This Section does not apply to the insurance provisions of the standard AIA contract that are “not designed to unilaterally relieve one party from the effects of its future negligence.” See Phoenix Ins. Co. v. Town of Vernon, No. HHDX07CV44025148, 2007 WL 196405, at *6 (Conn. Super. Ct. Jan. 5, 2007) (citing Best Friends Pet Care, Inc. v. Design Learned, Inc., 823 A.2d 329, 334 (Conn. App. Ct. 2003)). Nor does the statute impact or limit a contractual duty to defend. Collins v. Barlett Brainard Eacott, Inc., No. 136043018, 2017 WL 950507, at *2 (Conn. Sup. Ct. Feb. 15, 2017). Further, commercial leases do not fall within the provisions of Section 52-572k. Id. at *5.
Enforceability of Waiver of Consequential Damages Clauses
Connecticut 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 them. Generally, Connecticut courts enforce limitation-of-liability clauses in other, non-construction contexts, holding that contracts voluntarily and fairly made should be held valid and enforceable. See, e.g., Tallmadge Bros., Inc. v. Iroquois Gas Transmission Sys., L.P., 746 A.2d 1277, 1292 (Conn. 2000) (determining that general release provisions in settlement agreements precluded imposition of contractual liability on owner during construction of underwater pipeline). Connecticut courts have reasoned: “If the language of the agreement discloses that the parties intended to limit the remedies to those stated, the agreement will be enforced and the party will be limited to the exclusive remedies outlined in the agreement.” Shawmut Bank Conn., N.A., v. Conn. Limousine Serv., Inc., 670 A.2d 880, 885 (Conn. App. Ct. 1996). Moreover, at least one Connecticut court, when reviewing an arbitral award, appears to have implicitly acknowledged the parties ability to contractual exclude consequential damages from consideration by the arbitrator. See, e.g., City of Milford v. Coppola Const. Co., Inc., 891 A.2d 31, 37–39 (Conn. App. Ct. 2001) (“The restriction on an award of consequential damages therefore was not violated when the arbitrator awarded the defendant moneys for equipment downtime and the unused materials.”)
In the context of transactions for the sale of goods, the Connecticut Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances. See Conn. Gen. Stat. §§ 42a-2-711 – 42a-2-714, 42a-2-715(2). However, Connecticut code section 42a-2-719 permits the buyer and the seller to contract to limit or exclude consequential damages unless the contractually specified limitation or exclusion is unconscionable or where the circumstances cause the contractually specified limited or exclusive remedy to fail of its essential purpose.
Application of Economic Loss Doctrine
Connecticut courts apply the economic loss doctrine, which bars tort recovery for purely economic losses. Ulbrich v. Groth, 78 A.3d 76, 94, 100 (Conn. 2013) (“[T]he economic loss doctrine bars negligence claims that arise out of and are dependent on breach of contract claims that result only in economic loss.”). The Supreme Court of Connecticut has explicitly declined to impose a categorical bar to negligence claims because of the doctrine, however, instead opining that the question for Connecticut courts is simply a matter of whether the defendant owed a duty to the plaintiff as part of a traditional negligence analysis. See Lawrence v. O and G Indus., 126 A.3d 569, 574 n.8 (Conn. 2015); see also Raspberry Junction Holding, LLC v. S.E. Conn. Water Auth., 203 A.3d 1224, 1226 n. 3 (Conn. 2019). The United States District Court for the District of Connecticut has noted that Connecticut’s economic loss rule has at times been limited to “sophisticated commercial parties.” Aliki Foods, LLC v. Otter Valley Foods, Inc., 726 F. Supp. 2d 159, 167 (D. Conn. 2010) (citing lower Connecticut court decisions).
Connecticut has also codified its economic loss doctrine as it applies to products liability claims between commercial parties. Conn. Gen. Stat. § 52-572n(c) (“As between commercial parties, commercial loss caused by a product is not harm and may not be recovered by a commercial claimant in a product liability claim. An action for commercial loss caused by a product may be brought only under … title 42a, the Uniform Commercial Code.”).
Application of Rule Beyond Products Liability
There is a great deal of uncertainty in Connecticut as to whether the economic loss rule applies outside of the products liability context, especially given the Supreme Court of Connecticut’s disinclination to create a categorical rule. Lawrence, 126 A.3d at 574 n.8. The Supreme Court has identified two areas where the economic loss rule does not apply, however: 1) claims under the Connecticut Unfair Trade Practice Act “when the plaintiff has alleged that [a breach of contract] was accompanied by intentional, reckless, unethical or unscrupulous conduct”; Ulbrich, 78 A.3d at 102; and 2) negligent misrepresentation; see Williams Ford, Inc. v. Hartford Courant Co., 657 A.2d 212, 222 (Conn. 1995).
Beyond those specific claims, however, application of the rule in non-products liability cases has not been resolved by the Supreme Court of Connecticut, and disagreement between lower courts remains prevalent. See Smith Craft Real Estate Corp. v. Handex of Conn., Inc., No. CV030082188S, 2004 WL 1615896, at *3 (Conn. Super. Ct. June 25, 2004) (“[A] split has emerged among the superior courts as to whether the [economic loss doctrine] bars tort claims for economic loss in non-product liability cases.”). Some courts have not limited application of the economic loss rule to products liability cases. Worldwide Pres. Servs., L.L.C. v. IVth Shea, L.L.C, No. X05CV980167154S, 2001 WL 34093945, at *4 (Conn. Super. Ct. Feb. 1, 2001) (“It does not appear that [Connecticut’s economic loss rule] has been limited to merely product liability considerations.”); Fleming v. Gov’t Employees Ins. Co., 86 F. Supp. 3d 102, 107–08 (D. Conn. 2015) (applying economic loss doctrine to claim based upon insurance contract). Other courts refuse to expand the rule beyond its products-liability roots. See, e.g., Smith Craft Real Estate, 2004 WL 1615896, at *3 (declining to apply doctrine to negligence claims in connection with environmental site assessments of real property); Town of New Canaan v. Brooks Laboratories, Inc., No. FSTCV054006797S, 2007 WL 4214227, at *4 (Conn. Super. Ct. Nov. 7, 2007) (stating that cases expanding economic loss doctrine beyond products liability are “a minority” and rejecting the holding of those cases).
In the construction law context, some lower courts in Connecticut have applied the doctrine to construction cases. One court applied the doctrine where “[t]he contract specifically, in detail … addresse[d] risks of loss and limitations on damage claims [and] [a]llowing the parties to avoid their bargain, by casting their economic loss claims in tort language, would defeat the legitimate expectations underlying contract law.” Morganti Nat., Inc. v. Greenwich Hosp. Ass’n, No. X06CV990160125S, 2001 WL 1249807, at *1 (Conn. Super. Ct. Sept. 27, 2001). Recently, two Superior Court decisions held that the doctrine should be applied to construction cases. See Nordic Builders, Inc. v. Trademarc Construction, Inc., No. DBDCV186025176S, 2019 WL 1933640, at *2–*3 (Conn. Super. Ct. Apr. 5, 2019) (unpublished); Mastrobattisto, Inc. v. Nutmeg Util. Prod., Inc., No. CV156028626S, 2016 WL 1165107, at *7 (Conn. Super. Ct. Feb. 23, 2016) (unpublished). However, construction cases in Connecticut have been swept up in the uncertainty regarding the scope of the doctrine in non-product liability cases as described above, with some courts declining to apply the rule in the construction context. See Town of New Canaan, 2007 WL 4214227 at *4 (declining to apply doctrine to claims under a construction management contract); Milltex Properties v. Johnson, No. 565866, 2004 WL 615748, at *5 (Conn Super. Ct. Mar. 15, 2004) (agreeing with lower court cases that limiting economic loss rule and rejecting application of doctrine to claim under Connecticut Unfair Trade Practices Act relating to construction of sewer treatment plant).
Raspberry Junction Holding, LLC v. Southeastern Connecticut Water Authority
In 2021, the Supreme Court of Connecticut declined to impose a duty on a municipal water authority where a hotel operator filed a negligence action seeking to recover lost revenue in connection with a water supply outage that lasted several days, finding that no special relationship existed between the parties. See Raspberry Junction Holding, LLC v. Southeastern Connecticut Water Authority, 263 A.3d 796, 814 (Conn. 2021).
Enforceability of No Damages for Delay Clauses
No damages for delay clauses are generally valid and enforceable in Connecticut and are not considered contrary to public policy. C & H Elec., Inc. v. Town of Bethel, 96 A.3d 477, 485 (Conn. 2014); White Oak Corp. v. Dep’t of Transp., 585 A.2d 1199, 1203 (Conn. 1991). Connecticut courts recognize certain exceptions to enforceability including: (1) delays caused by an owner’s bad faith or willful, malicious, or grossly negligent conduct; (2) delays not contemplated by the parties; (3) delays so unreasonable that they constitute an intentional abandonment of contract by the owner; or (4) delays resulting from the breach of an owner’s fundamental obligation of the contract. C & H Elec., 96 A.3d at 485. The Supreme Court of Connecticut also recognized in 2014 that “active interference” may be an exception where a plaintiff shows an “affirmative, willful act that unreasonably interfered with the plaintiff’s work.” Id. at 488. To rise to the level of active interference, an “act must be more than a mistake, error in judgment, lack of total effort, or lack of diligence.” Id.
Strict Interpretation of Contract
In Connecticut, “‘a contract must be construed to effectuate the intent of the parties, which is determined from the language used and interpreted in the light of the situation of the parties and the circumstances connected with the transaction . . ..’” Poole v. City of Waterbury, 831 A.2d 211, 224 (Conn. 2003) (quoting Niehaus v. Cowles Business Media, Inc., 819 A.2d 765, 771 (Conn. 2003)). The intent of the parties is to be ascertained by a fair and reasonable construction of the written words and the language used must be afforded its common, natural, and ordinary meaning when sensibly applied to the subject matter of the contract. Isham v. Isham, 972 A.2d 228, 235–36 (Conn. 2009). If only one interpretation of the contract is possible, the Connecticut courts will not look outside the four corners of the contract. Id. at 235; see also City of Waterbury, 831 A.2d at 224-25. The terms of a written contract may not be varied or contradicted by parol evidence. Heaven v. Timber Hill, 900 A.2d 560, 569 (Conn. App. Ct. 2006); see also Weiss v. Smulders, 96 A.3d 1175, 1190 (Ct. 2014) (“Parol evidence offered solely to vary or contradict the written terms of an integrated contract is . . . legally irrelevant.”). The parol evidence rule does not in and of itself prevent the presentation of parol evidence; only the use of such to vary or contradict contractual terms. Id. Where the language of the contract is clear and unambiguous, the contract is to be given effect according to its terms. City of Waterbury, 831 A.2d at 224 (Conn. 2003).
Prompt Payment Requirements (Public/Private)
Connecticut Public –
Conn. Gen. Stat. §§ 4a-71 to 4a-75, 49-41c (2022) (public owner to prime within 45 days of receipt of properly completed claim or per contract terms, whichever is later; prime to sub within 30 days; interest at rate equal to monthly effective yield for Short Term Investment Fund). However, see § 4a-72 for exceptions to these requirements, e.g., good faith dispute. Also, see § 49-41c for requirements relating to contracts with the State.
Connecticut Private – Conn. Gen. Stat. §§ 42-158i to 42-158j (2022) (owner to prime 30 days after payment request made; prime to sub 25 days after receiving payment; sub to lower tier, also 25 days; interest at 1% per month).
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).
Licensing Requirements for Construction Managers
There are no specific licensing or registration requirements for construction managers in Connecticut. Construction management functions may, however, overlap with functions of contractors, engineers, or architects, which would require the applicable license or registration for most contractors under Conn. Gen. Stat. § 20-341gg(b), for architects under Conn. Gen. Stat. Ann. § 20-288 to -298b, and for engineers under Conn. Gen. Stat. Ann. § 20-302.