Enforceability of Limitation of Liability Clauses
Author: Saloni Shah and Joanna Kopcyzk
Limitation of Liability
Idaho courts will normally uphold contractual provisions that limit the liability of a party provided that such limitations are not in violation of public policy or unconscionable, neither of the parties is at an obvious disadvantage in bargaining power, and no “public duty” is involved. In Rawlings v. Layne & Bowler Pump Co., 465 P.2d 107 (Idaho 1970), the Supreme Court of Idaho upheld a contract clause exempting consequential damages and excluding liability for negligence, stating that “[f]reedom of contract is a fundamental concept underlying the law of contracts and is an essential element of the free enterprise system.” Id. at 110-11. Agreements exempting a party from liability for negligence will be upheld unless the party owes to the other party a public duty to defend created by statute or the other party is at an obvious disadvantage in bargaining power. Lee v. Sun Valley Co., 695 P.2d 361, 363 (Idaho 1984). Limitations of liability must also be clear and unambiguous. Walker v. Am. Cyanamid Co., 948 P.2d 1123, 1130 (Idaho 1997) (voiding limitation of liability on herbicide label because it was subject to conflicting interpretations).
The Supreme Court of Idaho has recognized limitation of liability provisions in design and construction cases. For example, in Grant Constr. Co. v. Burns, 443 P.2d 1005 (Idaho 1968), the court recognized a party’s right to limit damages in the context of a public contract for highway construction, stating that “[i]f the contracting parties agreed in the contract as to the measure of damages to be paid . . . then the contractor is barred from recovering any additional damages.” Id. at 1011. The court, however, ultimately found that the “limitation on damages” clause was rendered unenforceable by the state’s failure to arrange for the timely removal of utility poles which was a breach of contract and a risk the contractor did not agree to assume. Id. at 1011-13. The Supreme Court of Idaho in Idaho State Univ. v. Mitchell, 552 P.2d 776 (Idaho 1976) similarly noted that “[b]arring questions of unconscionability or public policy, [limitations on damages] are upheld even where the effect is to limit a party’s common law liability for breach of contract.” Id. at 779.
Idaho law also permits parties in sales contracts to limit liability and warranties in sales contracts. Idaho Code Ann. §§ 28-2-316, 28-2-719 (West 2022). Such limitations must contain “language of exclusivity” before the court will find that the parties agreed upon an exclusive remedy limiting liability. United States v. City of Twin Falls, Idaho, 806 F.2d 862, 872 (9th Cir. 1986), abrogated on other grounds as recognized by Ass’n of Flight Attendants, AFL-CIO v. Horizon Air. Indus., Inc., 976 F.2d 541 (9th Cir. 1992) (applying Idaho law and finding limitation invalid as it did not provide an exclusive contract remedy).
Idaho courts “look with disfavor on attempts to avoid liability and construe such provisions strictly against the person relying on them, especially when the person is the preparer of the document.” Anderson & Nafziger v. G.T. Newcomb, Inc., 595 P.2d 709, 712 (Idaho 1979); see also Frizzell v. DeYoung, 415 P.3d 341, 346 (Idaho 2018) (stating that “this Court disfavors provisions exculpating one’s own liability, and while one can settle past breaches of duty, one cannot exempt themselves from liability for future breaches of duty”). Exculpatory clauses must be clear and unambiguous as to the parties’ intent, but need not mention specific conduct. Morrison v. Nw. Nazarene Univ., 273 P.3d 1253, 1256 (Idaho 2012) (enforcing exculpatory provision in agreement with climbing wall participant that did not mention the specifically alleged negligent conduct). Exculpatory clauses exempting a party from negligence are unenforceable except where “(1) one party is at an obvious disadvantage in bargaining power, [or] (2) a public duty is involved (public utility companies, common carriers.)” Steiner Corp. v. Am. Dist. Tel., 683 P.2d 435, 439 (Idaho 1984).
Idaho law voids indemnity agreements in certain construction contracts when they indemnify the promisee against liability for bodily injury and damage to property resulting from the promisee’s sole negligence or willful misconduct. Idaho Code Ann. § 29-114 (West 2022). In Beitzel v. Orton, 827 P.2d 1160 (Idaho 1992), the Supreme Court of Idaho enforced an indemnity clause in a contract between a telephone company and an excavating contractor requiring indemnification to the telephone company for liability caused by the city. Id. at 1169. The city was not an “indemnitee” for purposes of Section 29-114. Id.
Enforceability of Waiver of Consequential Damages Clauses
Idaho courts have not directly addressed the issue of the enforceability of a waiver of consequential damages in the construction context, but it appears that they may enforce such clauses because they enforce limitation of liability clauses in other contexts. See Transport Truck & Trailer, Inc. v. Freightliner LLC, 2008 WL 11349678, at *5 (D. Idaho June 11, 2008) (finding defendant’s counterclaim for breach of contract seeking lost profits to be barred by the contractual provision limiting damages to those expressly provided for; “under either the UCC or general common law, the limitation is permissible”); Steiner Corp. v. Am. Dist. Telegraph, 683 P.2d 435, 439 (Idaho 1984) (according full force and effect to a clear and unambiguous limitation of liability clause in a fire alarm system maintenance contract excluding, inter alia, recovery of consequential damages, where the contract was “freely entered into, between two large corporations” and there was “no obvious disadvantage in bargaining power”).
Generally, Idaho courts hold that, “if parties to a contract have provided the measure of damages to be recoverable for breach of the duties imposed by the contract, [the parties] are bound by such provision and liability thereunder is restricted to the terms of the contract.” Idaho State Univ. v. Mitchell, 552 P.2d 776, 779 (Idaho 1976) (further noting that “[b]arring questions of unconscionability or public policy, such provisions are upheld even where the effect is to limit a party’s common law liability for breach of contract.”); see also Rawlings v. Layne & Bowler Pump Co., 465 P.2d 107, 111 (Idaho 1970) (quoting United States ex rel. and F/B/O Adm’r of Federal Hous. Admin. v. Troy-Parisian, Inc., 115 F.2d 224, 226 (9th Cir. 1940)) (“Unless in circumstances affronting public policy, it is no part of the business of the courts to decline to give effect to contracts which the parties have freely and deliberately made.”; Crafton v. Blaine Larsen Farms, Inc., 2005 WL 3244451, at *3 (D. Idaho Nov. 18, 2005) (“[T]he Court can only limit the measure of damages if the [parties’ contractual] provision is clear and unambiguous.”). However, Idaho courts will strictly construe contractual provisions purporting to limit a party’s remedies. See Clark v. Int’l Harvester Co., 581 P.2d 784, 796 (Idaho 1978).
In the context of transactions for the sale of goods, the Idaho Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances. See Idaho Code Ann. §§ 28-2-711 – 28-2-714, 28-2-715(2).
However, Idaho code section 28-2-719 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. The basic test for unconscionability asks whether, in light of the commercial setting and background of the parties, as well as the commercial needs of the particular case, the clause at issue is so one-sided as to be unconscionable under the circumstances existing at the time the contract was executed. Walker v. Amer. Cyanamid Co., 948 P.2d 1123, 1128–29 (Idaho 1997). The objective of the unconscionability inquiry is to prevent oppression and unfair surprise. Id. But see Potlatch Corp. v. Beloit Corp., 979 P.2d 114, 117–18 (Idaho 1999) (In a breach of contract action, the court vacated a judgment awarding consequential damages to plaintiff and remanded for a new trial where the lower court had disregarded the contract’s exclusion of lost revenues provision due to evidence of defendant’s bad faith during negotiations preceding execution of the agreement. The court expressly declined to decide “[w]hether bad faith can be deemed the equivalent of unconscionability” so as to invoke § 28-2-719(3) and nullify the contract’s limitation of damages provision.).
Application of Economic Loss Doctrine
Idaho courts recognize the economic loss doctrine and apply it to both products’ liability and construction cases. See Blahd v. Richard B. Smith, Inc., 108 P.3d 996, 1000 (Idaho 2005) (“Unless an exception applies, the economic loss rule prohibits recovery of purely economic losses in a negligence action because there is no duty to prevent loss to another.”); Just’s, Inc. v. Arrington Constr. Co., 583 P.2d 997, 1003-05 (Idaho 1978) (“Though the rule has been expressed in different ways, the common underlying pragmatic consideration is that a contrary rule, which would allow compensation for losses of economic advantage caused by the defendant’s negligence, would impose too heavy and unpredictable a burden on the defendant’s conduct.”). For the purposes of applying the doctrine, “economic loss includes costs of repair and replacement of defective property which is the subject of the transaction.” Blahd, 108 P.3d at 1000. Traditionally, Idaho has identified three exceptions to the economic loss rule: “when the economic loss is parasitic to an injury to person or property; where unique circumstances require a different allocation of the risk or in cases involving a special relationship between the parties.” First Bank of Lincoln v. Land Title of Nez Perce Cty, Inc., 452 P.3d 835, 845 (Idaho 2019). In addition, in 2018, the Supreme Court of Idaho limited the application of the economic loss rule to negligence claims, holding that claims for intentional torts (such as fraud, the claim at issue in that case) are not barred by the doctrine. Taylor v. Taylor, 422 P.3d 1116, 1125–26 (Idaho 2018).
Idaho courts have traditionally recognized two exceptions to the economic loss doctrine: the “special relationship” exception and the “unique circumstances” exception. A “‘special relationship’ … refers to those situations where the relationship between the parties is such that it would be equitable to impose such a duty.” Aardema v. U.S. Dairy Sys, Inc., 215 P.d 505, 512 (Idaho 2009) (citation omitted). Idaho courts only apply the special relationship exception in two situations. The first is “where a professional or quasi-professional performs personal services.” Id. (citing McAlvain v. Gen. Ins. Co. of Am., 554 P.2d 955, 958 (Idaho 1976) (applying to an insurance agent)); see also Duffin, 895 P.2d at 1201 (applying the exception to a professional association). However, the Idaho Supreme Court has refused to apply the special relationship exception to real estate developers. Blahd, 108 P.3d at 1001. The second is “where an entity holds itself out to the public as having expertise regarding a specialized function, and by so doing, knowingly induces reliance on its performance of that function.” Aardema, 215 P.3d at 512 (citing Duffin, 895 P.2d at 1201).
Idaho courts have also recognized a “unique circumstances exception,” but it has yet to be applied. Blahd, 108 P.3d at 1002 (citing Just’s Inc., 583 P.2d at 1005); see also Millenkamp v. Davisco Foods Int’l, 391 F. Supp. 2d 872, 879 (D. Idaho 2005) (“While the Idaho Supreme Court has recognized this exception to the economic loss rule, it has never applied the exception.”).
Enforceability of No Damages for Delay Clauses
No damages for delay clauses are generally enforceable in Idaho. Grant Constr. Co. v. Burns, 443 P.2d 1005, 1012 (Idaho 1968). However, the Idaho Supreme Court has held that “where the delay results from causes not within the contemplation of the parties or, where the delay is caused by active or direct interference by the contractee, the limited or ‘no damage’ provisions of the contract need not be adhered to.” Id.
Strict Interpretation of Contract
Idaho courts strictly interpret contracts. “When the language of a contract is clear and unambiguous, its interpretation and legal effect are questions of law. An unambiguous contract will be given its plain meaning. The purpose of interpreting a contract is to determine the intent of the contracting parties at the time the contract was entered. In determining the intent of the parties, [the court] must view the contract as a whole. If a contract is found ambiguous, its interpretation is a question of fact. Whether a contract is ambiguous is a question of law. A contract is ambiguous if it is reasonably subject to conflicting interpretations.” Commercial Ventures, Inc. v. Rex M. & Lynn Lea Family Trust, 177 P.3d 955, 960 (Idaho 2008) (internal citations omitted) (quoting Bakker v. Thunder Spring-Wareham, LLC, 108 P.3d 332, 337 (Idaho 2005)). The determination of whether a contract is ambiguous is made by giving words and phrases their ordinary meanings, and a party’s subjective interpretation of a word or phrase cannot make a contract ambiguous. Swanson v. Beco Const. Co., Inc., 175 P.3d 748, 752 (Idaho 2007). Idaho courts will not render a contract ambiguous on its face simply because one of the parties thought that the words used had some meaning that differed from the ordinary meaning of the words that are used. Id. However, Idaho courts may turn to extrinsic evidence of the language of the contract is ambiguous or if used to interpret a term of art. Id. at 753. If the court cannot determine the intent of the parties from the factual evidence, Idaho courts will resolve ambiguities against the drafter of the contract only as a last resort. Kunz v. Nield, Inc., 398 P.3d 165, 175 (Idaho 2017).
Prompt Payment Requirements (Public/Private)
Idaho Public – Idaho Code § 67-2302(2), (7) (2022) (owner to prime 60 days after receipt of billing, unless otherwise agreed by a contract in place at the time the order was placed; interest at statutory rate).
Idaho 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).
Idaho – N/A
Licensing Requirements for Construction Managers
Idaho statutes contain separate licensure requirements for construction managers on private and public projects. For private projects, construction managers are included within the statutory definition of contractors and are thus required to register with the Idaho Bureau of Occupational Licenses. See Idaho Code Ann. § 54-5203.
The “Public Works Construction Management Licensing Act of 1998” identifies a separate licensing procedure for obtaining a construction manager’s license for work on public projects, with the exception of highway, road or other transportation projects. See Idaho Code Ann. §§ 54-4501 to -4514. This statute defines construction management services as “representation of an owner on a public works construction project by a person with substantial discretion and authority…to plan or direct phases of a project.” Idaho Code Ann. § 54-4503(6). Only an individual, not a firm or business entity, may be licensed as a construction manager. Id. § 54-4504(2). No firm may provide or hold itself out as providing construction management services unless it holds a certificate of authority issued by the Board. Id. § 54-4509(1). A firm with a certificate of authority may provide construction management services if the provision of such services is supervised and controlled by a licensed construction manager who is a principal or employee of the firm. Id. § 54-4504(3). A licensed construction manager and the firm of which he is a principal or employee may not provide construction management services for a construction project on which the licensed construction manager or his firm also provides design or other construction-related services. Id. § 54-4511(1).