Enforceability of Limitation of Liability Clauses
Author: Saloni Shah and Joanna Kopcyzk
Limitation of Liability
Florida courts generally enforce contractual limitations of liability. See, e.g., Amoco Oil Co. v. Gomez, 125 F. Supp. 2d 492, 511 (S.D. Fla. 2000) (“Florida courts allow parties to limit remedies contractually, and if such provisions are made, a court may not award greater compensatory damages.”); MDS (Canada), Inc. v. Rad Source Techs., 822 F. Supp. 2d 1263, 1317 (S.D. Fla. 2011) (enforcing limitation of liability in licensing agreement for patents and technology, despite some ambiguity). Courts employ a three-step test in evaluating limitations of liability: (1) whether the clause clearly and unequivocally indicates the parties’ intention; (2) the limitation of liability must not absolve one party from all liability and must still provide a deterrent to negligence; and (3) the parties to the contract must have equal bargaining power. Diesel “Repower,” Inc. v. Islander Invs. Ltd., 271 F.3d 1318, 1324 (11th Cir. 2001). Florida law also permits the contractual limitations of remedies in sales contracts, as long as the limitation does not fail its essential purpose and is not unconscionable. Fla. Stat. Ann. §§ 672.719(1)-(3), 672.316 (West 2021); CC-Aventura, Inc. v. The Weitz Co., LLC, No. 06-21598-CIV, 2009 WL 3326806, at *4 (S.D. Fla. 2009) (“[L]imitation-of-liability provisions are enforceable even if they are not mutual.”). Florida courts will not readily void a limitation of liability for unconscionability. CC-Aventura, Inc., 2009 WL 3326806, at *4 (“The overarching policy in Florida is that unconscionability is a highly disfavored defense, and courts should not employ the concept to relieve a party of his obligations under a contract because he has made a bad bargain containing contractual terms which are unreasonable or impose an onerous hardship on him.”).
Florida courts disfavor exculpatory clauses, finding them “enforceable only where and to the extent that the intention to be relieved was made clear and unequivocal in the contract, and the wording must be so clear and understandable that an ordinary and knowledgeable party will know what he is contracting away.” Hinely v. Fla. Motorcycle Training, Inc., 70 So. 3d 620, 624 (Fla. Dist. Ct. App. 2011) (quoting Southworth & McGill, P.A. v. S. Bell Tel. & Tel. Co., 580 So. 2d 628, 634 (Fla. Dist. Ct. App. 1991)); Brooks v. Paul, 219 So. 3d 886, 891 (Fla. Dist. Ct. App. 2017) (rejected exculpatory provision was not “thorough and detailed” but instead “rife with ambiguity”). For example, the Eleventh Circuit, applying Florida law, has enforced a clause clearly and unequivocally absolving an engineer from its own negligence. Fla. Power & Light Co. v. Mid-Valley, Inc., 763 F.2d 1316, 1319-20 (11th Cir. 1985); but see Witt v. La Gorce Country Club, Inc., 35 So. 3d 1033, 1037 (Fla. Dist. Ct. App. 2010) (holding that limitation of liability clause in a contract with hydrogeologist did not apply to limit liability of the individual for professional malpractice). Even where waivers are clear and unambiguous, Florida courts consider whether the waiver contravenes public policy. Merlien v. JM Family Enterprises, Inc., 301 So. 3d 1, 3-4 (Fla. 4th DCA 2020) (disclaimer signed as condition of employment in which employee contracted away his statutory right to assert a claim against third-party tortfeasor is not void as against public policy).
Fla. Stat. Ann. § 725.06 (West 2021) voids any indemnity provision in a construction contract where a party promises to indemnify the other for damages caused by the indemnitee unless the provision contains a dollar limit to the indemnitor’s potential liability bearing a reasonable commercial relationship to the contract and is part of the project specifications or bid documents. The monetary limitation on the extent of the indemnification provided to the owner by any party in privity of contract with the owner cannot be any less than $1 million per occurrence unless the parties agree otherwise. Id.
Section 725.06 applies only when a party seeks to obtain indemnification from another party for its own active negligence. In Cuhaci & Peterson Architects, Inc. v. Huber Constr. Co., 516 So. 2d 1096 (Fla. Dist. Ct. App. 1987), a subcontractor’s employee was killed during the construction of a shopping center and the architect and contractor were sued by the estate. Id. at 1096. The architect’s insurance company paid for the architect’s defense, after which the architect, on behalf of the insurance company, brought an action against the contractor seeking indemnity for the attorney’s fees. Id. at 1097. The indemnity clause in the contract between the contractor and the owner provided that the contractor would indemnify the owner and the architect against claims, including attorney’s fees, attributable to bodily injury caused in whole or in part by a negligent act or omission of the contract. Id. Because the architect was seeking indemnification for attorney’s fees it incurred in defending a claim and not for its own active negligence, the court held that the architect was entitled to indemnity. Id. at 1097-98.
Section 725.06, however, does not apply to all contracts. In Blok Builders, LLC v. Katrynoik, the court held that Section 725.06 did not extend to subcontractors performing excavation services for underground utility lines. 245 So. 3d 779, 782-83 (Fla. Dist. Ct. App. 2018).
Enforceability of Waiver of Consequential Damages Clauses
Florida courts have directly addressed the enforcement of waiver of consequential damages clauses in the construction context. In Keystone Airpark Auth. v. Pipeline Contractors, Inc., 266 So.3d 1219 (Fla. Dist. Ct. App. 2019), pet. review den., 2019 WL 1371949, plaintiff airport filed suit alleging breach of contract and negligence against defendant engineering firm arising from defendant’s alleged failure to supervise the contractor’s work in repairing an airplane hangar and airport taxiways. The court expressly rejected plaintiff’s “argument that all limitations on liability for special or consequential damages in contracts involving professional service corporations … should be declared void pursuant to public policy. There is no public policy that would prohibit sophisticated parties … from negotiating a contract that limits liability for consequential damages.” Id. at 1224.
Indeed, in Florida, contractual clauses limiting potential liability are generally valid provided they are mutual, reasonable, and unequivocal. See Doctor Diabetic Supply, Inc. v. POAP Corp., 41 So.3d 916 (Mem), 916 (Fla. Dist. Ct. App. 2010) (per curiam) (“The parties’ contract contained a Limitation of Liability provision which precluded recovery of consequential damages.”); Cessna Aircraft Co. v. Avior Tech., Inc., 990 So. 2d 532, 538 (Fla. Dist. Ct. App. 2008). Put differently, exculpatory or limiting provisions in a contract “are enforceable, as long as the language of such clauses is ‘so clear and understandable that an ordinary and knowledgeable party will know what he is contracting away.’” Rose v. ADT Sec. Servs., 989 So. 2d 1244, 1249 (Fla. Dist. Ct. App. 2008) (quoting Southworth & McGill, P.A. v. S. Bell Tel. & Tel. Co., 580 So. 2d 628, 634 (Fla. Dist. Ct. App. 1991)). For example, in Design Eng’g Corp. v. Pan Aviation, Inc., 448 So. 2d 1112, 1112–13 (Fla. Dist. Ct. App. 1984), the court held that in a contract between an engineering and an aviation corporation, the parties had agreed that one party would not be liable for loss, including consequential damages. See also VoiceStream Wireless Corp. v. U.S. Commc’ns, Inc., 912 So.2d 34, 38–39 (Fla. Dist. Ct. App. 2005) (internal citations omitted) (In finding that a limitation of consequential damages provision was not unconscionable, the court noted: “Parties can contract to limit their liability. However, a party cannot waive liability imposed by statutory provisions that are intended to protect both an individual and the public because to do so would be contrary to public policy.”).
In the context of transactions for the sale of goods, the Florida Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances. See Fla. Stat. Ann. §§ 672.711 – 672.714, 672.715(2); see also Paul Gottlieb & Co., Inc. v. Alps S. Corp., 985 So.2d 1, 8 (Fla. Dist. Ct. App. 2007) (concluding that the “trial court erred by not enforcing the limitation of consequential damages clause” in a contract for the purchase of fabric), Florida Min. & Materials Corp. v. Standard Gypsum Corp., 550 So.2d 47, 48 (Fla. Dist. Ct. App. 1989) (buyer of goods may recover consequential damages for a seller’s breach of contract). However, Florida code section 672.719 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. Florida courts will not readily void a limitation of liability for unconscionability. CC-Aventura, Inc. v. The Weitz Co., LLC, 2009 WL 3326806, at *4 (S.D. Fla. Oct. 9, 2009) (“The overarching policy in Florida is that unconscionability is a highly disfavored defense, and courts should not employ the concept to ‘relieve a party of his obligations under a contract because he has made a bad bargain containing contractual terms which are unreasonable or impose an onerous hardship on him.’” (quoting Gainesville Health Care Ctr., Inc. v. Weston, 857 So. 2d 278, 284 (Fla. Dist. Ct. App. 2003)).
Application of Economic Loss Doctrine
Florida courts recognize the economic loss doctrine, but only in the context of products liability. Tiara Condo. Ass’n, Inc. v. Marsh & McLennan Cos., Inc., 110 So. 3d 399, 407 (Fla. 2013). Until Florida’s Supreme Court decision in Tiara Condominium, Florida law recognized the doctrine in other contexts. The Supreme Court of Florida openly acknowledged that it was reversing course on decades of precedent by expressly limiting the economic loss doctrine to products liability cases, stating that “[h]aving reviewed the origin and original purpose of the economic loss rule, and . . . the unprincipled extension of the rule, we now … hold that the economic loss rule applies only in the products liability context. We thus recede from our prior rulings to the extent that they have applied the economic loss rule to cases other than products liability.” Tiara Condo. Ass’n, Inc., 110 So. 3d at 407. Following Tiara, several federal courts in Florida have found that fraudulent inducement or negligent misrepresentation claims are barred by the economic loss rule in products liability cases. See, e.g., In re Takata Airbag Prods. Liability Litig., 193 F. Supp. 3d 1324, 1339 (S.D. Fla. 2016) (citing federal cases and holding that “[t]his Court agrees with other courts in this Circuit that have concluded that Florida’s Supreme Court [in Tiara] did not intend to allow such products liability claims to survive”).
Enforceability of No Damages for Delay Clauses
No damages for delay clauses are generally valid and enforceable in Florida, although Florida courts recognize exceptions for fraud, bad faith, and active interference with performance under the contract. Triple R Paving, Inc. v. Broward Cnty., 774 So. 2d 50, 54 (Fla. Dist. Ct. App. 2000); Newberry Square Dev. Corp. v. S. Landmark, Inc., 578 So. 2d 750, 752 (Fla. Dist. Ct. App. 1991). Moreover, a no damages for delay clause will not be enforced in the face of a “‘knowing delay’ which is sufficiently egregious, or upon the willful concealment of foreseeable circumstances which impact timely performance.” Newberry, 578 So. 2d at 752 (internal citation omitted).
Strict Interpretation of Contract
In Florida, if the terms of the contract are clear and unambiguous, the parties’ intent must be gleaned from the four corners of the document. Crawford v. Barker, 64 So.3d 1246, 1255 (Fla. 2011). Florida courts will construe contracts according to their plain language. Government Employees Ins. Co. v. Macedo, 228 So.3d 1111, 1113 (Fla. 2017). If the language of the contract is susceptible to more than one reasonable interpretation, it is ambiguous. Penzer v. Transportation Ins. Co., 29 So.3d 1000, 1005 (Fla. 2010). However, “[a] true ambiguity does not exist merely because a contract can possibly be interpreted in more than one manner. Indeed, fanciful, inconsistent, and absurd interpretations of plain language are always possible. It is the duty of the trial court to prevent such interpretations.” Am. Med. Int’l, Inc. v. Scheller, 462 So 2d 1, 7 (Fla. 4th DCA 1984). Florida courts refuse to rewrite the clear and unambiguous terms of a voluntary contract. Churchville v. GACS Inc., 973 So.2d 1212, 1216 (Fla. 1st DCA 2008). This is true even when contractual terms bind a party to a seemingly harsh bargain. Id. Florida courts construe contracts in accordance with the plain meaning of the words and will refuse to rewrite a contract to make it more reasonable for one of the parties or to relieve a party from what turns out to be a bad bargain. See Id. at 1215-17 (citing Barakat v. Broward Cnty. Hous. Auth., 771 So. 2d 1193, 1195 (Fla. 4th DCA 2000)). Florida courts further will not interpret a contract in such a way as to render provisions meaningless when there is a reasonable interpretation not to do so. Moore v. State Farm Mut. Auto Ins. Co., 916 So. 2d 871, 877 (Fla. 2d DCA 2005). Florida courts are required to follow the rule that a contract be interpreted against the drafter when the contract contains an ambiguous term; however, this is a rule of last resort and is inapplicable if there is evidence of the parties’ intent at the time they entered into the contract. DSL Internet Corp. v. TigerDirect, Inc., 907 So. 2d 1203, 1205 (Fla. 3d DCA 2005).
Prompt Payment Requirements (Public/Private)
Florida Public (State Contracts) – Fla. Stat. §§ 255.071 to .074 (2022). The Florida Prompt Payment Act applies to construction contracts with a Public entity, which Florida Statute § 255.072(5) defines as the state, or any office, board, bureau, commission, department, branch, division, or institution thereof (other than a local government entity) (public entity to submit payment request to Florida’s Chief Financial Officer for payment no later than 20 days after receipt of payment request; owner to prime within 30 days after date the labor, services, or materials were furnished and payment became due; prime to sub within 10 days from receipt of payment; sub to lower tier within 7 days from receipt of payment; interest on undisputed sums accrues at 2% per month).
Florida Public (Local Government Contracts) – Fla. Stat. §§ 218.70 to .80 (2022). The Florida Local Government Prompt Payment Act applies to counties, municipalities, school boards, school districts, authorities, special taxing districts, other political subdivisions, or any office, board, bureau, commission, department, branch, division, or institution thereof. (local government entity to prime within 20 business days after the invoice is stamped as received; unless payment is conditioned upon approval by an agent, in which case payment is due 25 business days after the date on which the invoice is stamped as received; prime to sub within 10 days from receipt of payment; sub to lower tier within 7 days from receipt of payment; retainage capped at 5%; interest on all late payments accrues at 2% per month or at the rate specified by contract, whichever is greater).
Florida Private –Fla. Stat. §§ 713.346, 715.12 (2022) (owner to prime per contract terms once prime has submitted invoice and affidavits/waivers required; interest accrues starting on 14th day after payment due at rate set by Florida’s Chief Financial Officer plus 12% per annum or per contract rate; prime to subs and subs to lower tier 30 days after receipt of payment or per contract).
False Claims Statute
Fla. Stat. Ann. §§ 68.081 to 68.092 – The Florida False Claims Act mirrors the FCA. The Florida Act, however, contains more flexible protection for violators wishing to cooperate with a false claim investigation. Fla. Stat. Ann. § 68.082(3). If a violator meets just one of the three requirements for reduced damages under the Florida Act, which are similar to those found in the FCA, then a court may reduce the violator’s liability to two times the amount of damages sustained by the state. Id. Florida imposes a civil penalty range of $5,500 to $11,000 and treble the amount of damages sustained by the state. Id. § 68.082(2).
Licensing Requirements for Construction Managers
While Florida’s Construction Industry Licensing Board does not require a specific license for construction managers, it does require that contractors be registered with the Board. See Fla. Stat. Ann. § 489.127(1)(f). For a business to be registered as a contractor, it must have an individual “qualifying agent” registered with the organization. See id. § 489.127(1)(g). Florida statutes define “qualifying agent” as “a person who possesses the requisite skill, knowledge, and experience, and has the responsibility, to supervise, direct, manage, and control the contracting activities of the business organization with which he or she is connected; who has the responsibility to supervise, direct, manage, and control construction activities on a job for which he or she has obtained the building permit; and whose technical and personal qualifications have been determined by investigation and examination as provided in this part…” Id. § 489.105(4). Under this definition, contracting organizations must have an individual registered to perform construction management services.
In Florida, unlicensed or unregistered contractors face civil and criminal liability, may not enforce their construction contracts (in law or in equity), and cannot obtain or enforce a construction lien. See id. §§ 489.127-.128; § 713.02.