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Enforceability of Limitation of Liability Clauses

Limitations of Liability

Georgia law permits the contractual limitations in service contracts.  For example, in RSN Props., Inc. v. Eng’g Consulting Servs., Ltd., 686 S.E.2d 853 (Ga. Ct. App. 2009), the Georgia Court of Appeals upheld a limitation of liability provision in a contract for professional engineering services.  Id. at 855.  The contractual provision limited the liability of the engineering firm to the developer for engineering errors to the value of the engineering services or the sum of $50,000, whichever was greater.  Id. at 953.  The court found that the limitation of liability reflected an “arms-length bargain to perform the service at the agreed-upon fee in return for the liability cap.”  Id. at 855.  The court also noted that such a limitation of liability provision “recognizes that the fee for the service is small compared to the substantial liability which could arise from an error in providing the service.”  Id.  Thus, the court upheld the provision.  Id.

Parties are similarly permitted to use contractual limitations of remedies in sales contracts, as long as the limitation does not fail its essential purpose and is not unconscionable.  Ga. Code Ann. § 11-2-719(1)-(3) (West 2021).  To be found invalid, the clause must be “so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract.”  Crider, Inc. v. Convenience Food Sys., Inc., No CV604-102, 2005 WL 3299563, at *2 (S.D. Ga. Dec. 5, 2005) (quoting R.L. Kimsey Cotton Co. v. Ferguson, 214 S.E.2d 360, 363 (Ga. 1975)). 

Limitations of liability must be sufficiently prominent to be enforceable.  2010-1 SFG Venture LLC v. Lee Bank & Trust Co., 775 S.E.2d 243, 247-48 (Ga. Ct. App. 2015).  Courts consider whether the clause is contained in a separate paragraph, whether the clause has a separate heading, and whether the clause is distinguished by features such as font size.  Id. at 248.  Notably, Georgia courts disregard whether the clause at issue is characterized by a limitation of liability clause or an exculpatory clause because the law does not treat such clauses differently for purposes of review.  Warren Averett, LLC v. Landcastle Acquisition Corp., 825 S.E.2d 864, 868, n. 12 (2019), cert. denied (Nov. 4, 2019) (citing 2010-1 SFG Venture LLC).

Exculpatory Clauses

Georgia courts adhere to the principal that parties are free “to waive numerous and substantial rights, including the right to seek recourse in the event of a breach by the other party,” unless contrary to public policy.  Imaging Sys. Int’l, Inc. v. Magnetic Resonance Plus, Inc., 490 S.E.2d 124, 127 (Ga. Ct. App. 1997) (quoting Piedmont Arbors Condo. Ass’n v. BPI Constr. Co., 397 S.E.2d 611, 611 (Ga. App. (1990)).  Exculpatory provisions, however, must be “explicit, prominent, clear and unambiguous.”  Id. at 128. (finding limitation of liability provision prominent and enforceable where set off in its own paragraph and all key language capitalized).  

Indemnity Agreements

Ga. Code Ann. § 13-8-2(b) (West 2021) voids clauses in certain construction contracts that purport to hold a party harmless against liability for bodily injury or property damage arising from the party’s sole negligence.  Under the statute, “a provision in an agreement whereby a building contractor purports to waive liability for property damages allegedly resulting from the sole negligence of the contractor’s agents or employees is void and unenforceable.”  Lanier at McEver, L.P. v. Planners & Eng’rs Collaborative, Inc., 663 S.E.2d 240, 242 (Ga. 2008) (citations omitted).  While a limitation of liability clause would not normally be subject to Section 13-8-2, Georgia courts will construe the clause as an indemnification agreement if it immunizes a party from liability to third parties by requiring reimbursement for any losses.  Id. (“Thus, while a third party is not precluded from suing [defendant] . . . the clause at issue here allows [defendant] to recover any judgment amount entered against it from [Plaintiff.]”).  Section 13-8-2 does not, however, apply to an equipment rental contract, even if that equipment is used in conjunction with a construction project.  Nationwide Mut. Ins. Co. v. Architectural Glazing Sys., Inc., No. 1:13-cv-01069, 2015 WL 11438555, at *15-16 (N.D. Ga. Aug. 25, 2015).

Enforceability of Waiver of Consequential Damages Clauses

Georgia courts have not directly addressed the enforcement of waiver of consequential damages clauses in the construction context.  However, Georgia courts have enforced such clauses in other contexts.  In general, Georgia courts have held that “[a]bsent a public policy interest, contracting parties are free to contract to waive numerous and substantial rights,” including those for consequential damages, and such limitations are valid and binding.  Imaging Sys. Int’l, Inc. v. Magnetic Resonance Plus, 490 S.E.2d 124, 127 (Ga. Ct. App. 1997) (citations omitted) (holding that a contractual provision prohibiting the recovery of consequential damages precludes award for contractual profits actually lost as a result of breach).  In Precision Planning, Inc. v. Richmark Cmtys., Inc., 679 S.E.2d 43, 46 (Ga. Ct. App. 2009), the court enforced a contract provision in which an architect limited any and all liability “for any damage on account of any error, omission or other professional negligence to a sum not to exceed $50,000 or the amount of the fee, whichever is greater.”  Further, “in Georgia[,] there is no generally applicable rule of law forbidding one contracting party from waiving all recourse in the event of breach by the other.  In the absence of a public policy question, parties may contract to waive numerous and substantial rights.”  Orkin Exterminating Co. v. Stevens, 203 S.E.2d 587, 593 (Ga. Ct. App. 1973) (citations omitted) (further noting that [i]n the absence of a public policy question, parties may contract to waive numerous and substantial rights.”).  But see Warren Averett, LLC v. Landcastle Acquisition Corp., 825 S.E.2d 864, 868 (Ga. Ct. App. 2019) (affirming that a contractual provision limiting firm’s damages was unenforceable because it was “not explicit, prominent, clear, and unambiguous”).

In the context of transactions for the sale of goods, the Georgia Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances.  See Ga. Code Ann. §§ 11-2-711 – 11-2-714, 11-2-715(2).  However, Georgia code section 11-2-719 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 “Although as a general rule, incidental and consequential damages are recoverable in a breach of warranty action, the recovery of such damages may be limited or altered by the parties’ contract.  Georgia law expressly permits manufacturers of consumer goods to disclaim liability for consequential damages unless the limitation or exclusion is unconscionable.”  Lee v. Mercedes-Benz USA, LLC, 622 S.E.2d 361, 362 (Ga. Ct. App. 2005) (citation and quotation marks omitted). A determination of unconscionability “must be made in the light of the general commercial background and the commercial needs of the particular trade or case.”  Taliaferro v. Samsung Telecomms. Am., LLC, No. 3:11-CV-1119-D, 2012 WL 169704, at *7 (N.D. Tex. Jan. 19, 2012) (analyzing Georgia law) (citation and quotation marks omitted).  To be found invalid, the clause must be “so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract.”  Crider, Inc. v. Convenience Food Sys., Inc., No CV604-102, 2005 WL 3299563, at *2 (S.D. Ga. Dec. 5, 2005) (quoting R.L. Kimsey Cotton Co., Inc. v. Ferguson, 214 S.E.2d 360, 363 (Ga. 1975)).

Application of Economic Loss Doctrine

Georgia courts recognize the economic loss doctrine under the “intermediate” approach, which bars tort recovery for purely economic losses except in situations of dangerous situations to persons or property.  Georgia has codified its rule, which only extends the doctrine to cases of direct privity between the parties unless there is an independent duty arising between the parties.  Ga. Code Ann. § 51-1-11 (“[I]f the tort results from the violation of a duty which is itself the consequence of a contract, the right of action is confined to the parties and those in privity to that contract, except in cases where the party would have a right of action for the injury done independently of the contract.”); see also Carolina Cas. Ins. Co. v. R.L. Brown & Associates, Inc., No. CIV.A. 1:04-CV-3537-, 2006 WL 3625891, at *5 (N.D. Ga. Dec. 11, 2006). 

Lower Georgia courts have recognized the economic loss rule in construction and construction defect cases in some limited circumstances.  See Holloman v. D.R. Horton, Inc., 524 S.E.2d 790, 796 (Ga. Ct. App. 1999) (“[T]his rule is generally applicable to a home constructed by a builder … but we have found no Georgia case that so holds.  It appears that at least with respect to homebuilders marketing and selling their homes to the public, Georgia law allows contract and negligence actions to proceed simultaneously.”).  In construction claims, courts have reviewed whether the claim is one brought within or outside the scope of the contract to determine whether the economic loss rule applies.  Compare Rowe v. Akin & Flanders, Inc., 525 S.E.2d 123, 126 (Ga. Ct. App. 1994) (holding economic loss rule did not apply to independent negligent construction claim), with City of Atlanta v. Benator, 714 S.E.2d 109, 116-17 (Ga. Ct. App. 2011) (applying the economic loss rule to bar claims of homeowners against city contractors because no independent duty applied).  The Supreme Court of Georgia has never considered the viability of a “negligent construction case” despite the varied applications by the Court of Appeals.  See Thomaston Acquisition, LLC v. Piedmont Const. Group, Inc., 829 S.E.2d 68, 70 n. 1 (Ga. 2019) (“[T]his Court appears never to have squarely considered whether or how the [economic loss] rule would apply in a negligent construction case, although the Court of Appeals has.”).

Policy Exceptions

Georgia law does not apply the economic loss doctrine to bar tort remedies for cases of misrepresentation or fraud.  See Atl. Geoscience, Inc. v. Phoenix Dev. & Land Inv., LLC, 799 S.E.2d 242, 245 (Ga. Ct. App. 2017) (recovery of economic loss permitted in tort on claim of professional negligence resulting in a misrepresentation); Home Depot U.S.A., Inc. v. Wabash Nat. Corp., 724 S.E.2d 53, 59 (Ga. Ct. App. 2012) (fraud and negligent misrepresentation claims fall under exception to rule); ASC Constr. Equip. USA, Inc. v. City Commercial Real Estate, Inc., 693 S.E.2d 559, 566 (Ga. Ct. App. 2010) (fraud claim permitted). Additionally, there is an exception to the application of the doctrine in instances of sudden calamity posing unreasonable risk to persons and other property.  Vulcan Materials Co. v. Driltech, Inc., 306 S.E.2d 253, 257 (Ga. 1983).

Enforceability of No Damages for Delay Clauses

No damages for delay clauses are generally valid and enforceable in Georgia.  See L & B Constr. Co. v. Ragan Enters, Inc., 482 S.E. 2d 279, 282-83 (Ga. 1997) (enforcing a no damages for delay provision incorporated as a flow down provision in a subcontract).  Georgia courts have held; however, that such clauses are not applicable to delays not contemplated by the parties.  See  Dep’t of Transp. v. Arapaho Constr., Inc., 357 S.E. 2d 593, 594 (Ga. 1987).  In addition, because such clauses “act as exculpatory clauses,” they “must be clear and unambiguous . . . specific in what they purport to cover, and any ambiguity will be construed against the drafter of the instrument.”  Id.


Strict Interpretation of Contract

In Georgia, contract language is afforded its literal meaning and plain, ordinary words are given their usual significance.  4 G Props., LLC v. GALS Real Estate, Inc., 656 S.E.2d 922, 923 (Ga. Ct. App. 2008).  If the terms used are clear and unambiguous, they are to be taken and understood in their plain, ordinary, and popular sense.  See Ga. Code Ann. § 13-2-2.  When construing contracts, Georgia courts will first look to the plain meaning of the words of the contract.  See Nesbitt v. Wilde, 703 S.E.2d 389 (Ga. Ct. App. 2010).  If there is no ambiguity in a contract, Georgia courts will enforce the contract according to its terms.  Auto-Owners Ins. Co. v. Neisler, 779 S.E.2d 55, 59 (Ga. Ct. App. 2015)(citing Michna v. Blue Cross & Blue Shield of Ga., Inc., 653 S.E.2d 37 (Ga. App. Ct. 2007)).  If there is ambiguity, Georgia courts will resolve said ambiguity through the application of statutory rules of construction to ascertain the intent of the parties whereby the courts will interpret any isolated clause and provisions of the contract in the context of the agreement as a whole, will construe ambiguities most strongly against the party who drafted that agreement, and will give the contract, as a whole, a reasonable instruction so as to uphold the agreement rather than render any parts of the agreement meaningless or ineffective. Willesen v. Ernest Communications, Inc., 746 S.E.2d 755, 758 (Ga. Ct. App. 2013) (citing Holmes v. Clear Channel Outdoor, Inc., 644 S.E.2d 311, 313 (Ga. Ct. App. 2007)). A contract is ambiguous if the intent of the parties is in question and the contract provisions are susceptible to more than one meaning. Auto-Owners Ins. Co., 779 S.E.2d at 59.  Georgia courts follow the rule that if there is ambiguity, the contract will be construed against the drafter and in favor of the non-drafter, so long as the non-drafter’s interpretation is reasonable. Langley v. MP Spring Lake, LLC, 834 S.E.2d 800, 804 (Ga. 2019).

Prompt Payment Requirements (Public/Private)

Georgia Public – The Georgia Prompt Pay Act, Ga. Code Ann. §§ 13-11-1 to 13-11-11 (2022), applies to public and private projects.  Ga. Code Ann. § 13-11-4(a) (owner to prime 15 days after invoice), § 13-11-4(b) (prime to sub within 10 days of receipt by prime of periodic or final payment); § 13-11-7 (interest at 1% per month on unpaid invoices unless otherwise agreed).

Georgia Private – The same Act applies to private and public projects.  See Ga. Code Ann. § 13-11-2(4) (2022) (“Owner” defined as “person who has an interest in the real property improved and for whom an improvement is made and who ordered the improvement to be made.  ‘Owner’ includes private persons and entities and state, local, or municipal government agencies;” however, the act does not apply to counties with populations under 10,000).  Accordingly, the payment timeframes and penalties for private projects are the same as for public (owner to prime 15 days after invoice; prime to sub 10 days after payment; interest at 1% per month unless otherwise agreed). 

False Claims Statute

Ga. Code Ann. §§ 23-3-120 to 23-3-126 – The Georgia Taxpayer Protection False Claims Act (GTPFCA) applies to both state and local government.  Id. § 23-3-121(a).  It parallels the same seven bases for civil liability under the FCA.  Id.  The civil penalty for violating the GTPFCA is greater than the FCA and may be between $5,500 and $11,000, plus treble damages, all costs, reasonable expenses, and reasonable attorney’s fees incurred by the government.  Id. § 23-3-121(a), (c).  Similar to the FCA, the GTPFCA reduces the violator’s liability to not more than two times the amount of damage that the government sustained if a violator: (1) provides all the information known about that violation to the governmental investigators within 30 days of gaining that knowledge; (2) fully cooperates with the governmental investigators; and (3) provides the information without actual knowledge of the investigation and before the commencement of criminal prosecution, civil action or administrative action.  Id. § 23-3-121(b).

Licensing Requirements for Construction Managers

Georgia statutes expressly include “construction management services” within the definition of a “contractor.”  See Ga. Code Ann. § 43-41-2.  The Georgia statute requires construction managers who are “at risk contractually to the owner for the performance and cost of the construction” to comply with the licensing requirements for general and residential contractors.  See Ga. Code Ann. §§ 43-41-1 to -19.

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