Enforceability of Limitation of Liability Clauses
Author: Saloni Shah and Joanna Kopcyzk
Limitations of Liability
Iowa courts enforce limitation of liability clauses unless they are unconscionable. See, e.g., Optimal Interiors, LLC v. HON Co., 774 F. Supp. 2d 993, 1013-14 (S.D. Iowa 2011) (enforcing limitation of liability clause in distribution agreement because there was no evidence of bad faith); C & J Vantage Leasing Co. v. Wolfe, 795 N.W.2d 65, 77 (Iowa 2011) (“Contracting parties have wide latitude to fashion their own remedies for a breach of contract and to deny full effect to such express contractual provisions is ordinarily impermissible because it would ‘effectively reconstruct the contract contrary to the intent of the parties’”). Iowa courts also permit the contractual limitation of liability and exclusion or modification of warranties in sales contracts under Iowa Code Ann. §§ 554.2316, 554.2719(1)-(3) (West 2021). See also Nelson v. DeKalb Swine Breeders, Inc., 952 F. Supp. 622, 626 (N.D. Iowa 1996) (enforcing limitation of remedy in contract for sale of livestock under Section 554.2719); Polar Insulation, Inc. v. Garling Constr., Inc., No. 15-1501, 2016 WL 6396208, at *4 (Iowa Ct. App. Oct. 26, 2016) (barring subcontractor’s claim for consequential damages against general contractor based on limitation of liability).
Iowa courts strictly construe exculpatory provisions. Advance Elevator Co. v. Four State Supply, 572 N.W.2d 186, 189 (Iowa Ct. App. 1997) (rejecting exculpatory clause on back of contract because there was no evidence that the party seeking to enforce it had brought it to the other party’s attention as to make the clause a term of the contract). Exculpatory clauses in public works contracts are sometimes known as “no damage” clauses, which insulate the public agency from liability for any damage caused by delay. As with any exculpatory clause, courts strictly construe “no damage” clauses. Owen Constr. Co. v. Iowa State Dep’t of Transp., 274 N.W.2d 304, 306-07 (Iowa 1979) (enforcing “no damage” clause, particularly because it allowed recovery for delay caused by the contracting authority’s negligence and was therefore less restrictive than traditional no damage clauses). Courts will not interpret general exculpatory provisions to cover the negligence of a party without a clear expression of mutual intent. Hargrave v. Grain Processing Corp., No. 14-1197, 2015 WL 1331706, at *3 (Iowa Ct. App. Mar. 25, 2015).
Iowa courts strictly construe indemnification contracts. Maxim Tech. Inc. v. City of Dubuque, 690 N.W.2d 896, 901 (Iowa 2005). “The right to indemnity . . . is generally recognized against contractors.” Evans v. Howard R. Green Co., 231 N.W.2d 907, 917 (Iowa 1975). While a contract for indemnification is generally subject to the same rules of formation and validity as other contracts, contracts will not be construed to permit an indemnitee to recover for its own negligence unless the intention of the parties is clearly and unambiguously expressed. McNally & Nimergood v. Neumann-Kiewit Constructors, Inc., 648 N.W.2d 564, 571 (Iowa 2002). Similarly, Iowa Code Ann. § 537A.5 (West 2022) prohibits indemnification agreements in construction contracts that require one party to indemnify the other’s negligence. However, this statute does not apply to claims between the parties to the agreement. Rather, it obligates the indemnitor to protect the indemnitee against claims brought by other persons not a party to the provision. Standard Water Control Sys., Inc. v. Michael D. Jones & Cori Jones, No. 15-0458, 2016 WL 7478610 (Iowa Ct. App. Aug. 31, 2016).
Enforceability of Waiver of Consequential Damages Clauses
Iowa courts have directly addressed the enforcement of waiver of consequential damages clauses in the construction context. In Polar Insulation, Inc. v. Garling Const. Inc., 888 N.W.2d 902 (Table) (Iowa Ct. App. 2016), the court cited to a case addressing contractual limitations on consequential damages in the sales context to support its enforcement of a clause waiving consequential damages in a construction subcontract. Id. at *4. Generally, Iowa courts permit parties to contractually limit remedies, provided that the limitation is not unconscionable. See, e.g., C & J Vantage Leasing Co. v. Wolfe, 795 N.W.2d 65, 77 (Iowa 2011) (citations and quotation marks omitted) (“Contracting parties have wide latitude to fashion their own remedies for a breach of contract and to deny full effect to such express contractual provisions is ordinarily impermissible because it would effectively reconstruct the contract contrary to the intent of the parties.”).
In the context of transactions for the sale of goods, the Iowa Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances. See Iowa Code §§ 554.2711 – 554.2714, 554.2715(2). However, Iowa code section 554.2719 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. See, e.g., Car Wash Consultants, Inc. v. Belanger, Inc., 777 N.W.2d 128 (Table), at *5 (Iowa Ct. App. 2009) (noting that waivers of consequential damages “are enforceable unless they are unconscionable” and thus vacating the lower court’s lost profits award under a warranty’s consequential damages exclusion); Select Pork, Inc. v. Babcock Swine, Inc., 640 F.2d 147, 149–50 (N.D. Iowa 1996) (holding that where sellers did not deliver specific breeds of pigs described in the agreement, limitation-of-remedies clause failed of its essential purpose and therefore the clause limiting recovery of consequential damages was void as unconscionable).
Application of Economic Loss Doctrine
The Iowa Supreme Court has upheld the economic loss rule to bar recovery in negligence where the plaintiff has suffered only economic loss. Annett Holdings, Inc. v. Kum & Go, L.C., 801 N.W.2d 499, 503 (Iowa 2011); Nebraska Innkeepers, Inc. v. Pittsburgh-Des Moines Corp., 345 N.W.2d 124, 126 (Iowa 1984) (“The well-established general rule is that a plaintiff who has suffered only economic loss due to another’s negligence has not been injured in a manner which is legally cognizable or compensable.”). The doctrine is not limited to products liability lawsuits and includes construction claims. See Lipps v. Hjelmeland Builders, Inc., 760 N.W.2d 209, at *1 (Iowa Ct. App. 2008) (citing Determan v. Johnson, 613 N.W.2d 259, 260–61, 263 (Iowa 2000)). Property damage is not considered “economic loss” of the kind that implicates the doctrine. Manning v. Int’l Harvester, Co., 381 N.W.2d 376, 379 (Iowa Ct. App. 1985).
Exception for Negligent Misrepresentation
Iowa law recognizes that the economic loss doctrine does not bar negligent misrepresentation claims between contracting parties. Van Sickle Constr. Co. v. Wachovia Commer. Mortg., Inc., 783 N.W.2d 684, 691-92 (Iowa 2010) (holding that Iowa’s economic loss rule did not bar plaintiff’s claim for negligent misrepresentation). Although Iowa courts have placed limitations on the application of the tort of negligent misrepresentation, they have not placed any limitations on the tort in the context of contractor claims against architects or engineers. Id. at 693-94.
Enforceability of No Damages for Delay Clauses
Iowa courts generally hold that no damages for delay clauses are valid and enforceable if the language is clear and unambiguous. See, e.g., Cunningham Bros., Inc. v. Waterloo, 117 N.W.2d 46, 49 (Iowa 1962) (recognizing that “the general rule appears to be that a ‘No Damage’ clause in a contract is valid, but, due to the harsh results often induced thereby, will be strictly construed”). Iowa courts also recognize exceptions to no damages for delay clauses where the delay: (1) is of a kind not contemplated by the parties; (2) is the result of fraud or bad faith; (3) is caused by active interference upon the part of the one who seeks the benefits thereof; or (4) amounts to abandonment of the contract. See Dickinson Co. v. Iowa State Dep’t of Transp., 300 N.W.2d 112, 114 (Iowa 1981); Cunningham, 117 N.W.2d at 49.
Strict Interpretation of Contract
Iowa courts strictly interpret contracts. The cardinal principle in contract interpretation for Iowa courts is that the intent of the parties must control, and except in cases of ambiguity, this is determined by what the contract itself says. Peak v. Adams, 799 N.W.2d 535, 543 (Iowa 2011) (citing Iowa R. App. P. 6.904(3)(n)). In interpreting a contract, “‘[w]ords and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight.’” Pillsbury Co., Inc. v. Wells Dairy, Inc., 752 N.W.2d 430, 436 (Iowa 2008) (quoting Fausel v. JRJ Enters., Inc., 603 N.W.2d 612, 618 (Iowa 1999)). Iowa courts will also look to extrinsic evidence in order to interpret the meaning of a contract, but the most important evidence of the parties’ intentions at the time they entered into the contract are the words set forth in the contract. NevadaCare, Inc. v. Dept. of Human Services, 783 N.W.2d 459, 466 (Iowa 2010). In interpreting whether a contract’s terms are ambiguous, Iowa courts follow the rule that a term is not ambiguous merely because the parties disagree about its meaning. Walsh v. Nelson, 622 N.W.2d 499, 503 (Iowa 2001). Instead, Iowa courts find that “[a] term is ambiguous if, after all pertinent rules of interpretation have been considered, a genuine uncertainty exists concerning which of two reasonable interpretations is proper. Id. Therefore, Iowa “[c]ourts must declare the intention of the parties from the language employed in the entire instrument, regardless of the classification of the parties as determined by themselves, bearing in mind that it is not the nomenclature which the contract uses, but the provisions which it makes for control of the details of the work that determine the status of the parties.” Schlotter v. Leudt, 123 N.W.2d 434, 438 (Iowa 1963).. Iowa courts further will strictly construe ambiguities against the drafter of the contract. Iowa Fuel & Minerals, Inc. v. Iowa State Bd. of Regents, 471 N.W.2d 859, 862-63 (Iowa 1991).
Prompt Payment Requirements (Public/Private)
Iowa Public – Iowa Code §§ 573.12, 573.14 (2022) (owner to prime 14 days after invoice or per contract, but not to exceed 30 days after invoice; final payment 40 days or per contract not to exceed 50 days after completion and acceptance; prime to sub 7 days after payment or a reasonable time after the contractor could have received payment for the subcontractor’s work, if the reason for nonpayment is not the subcontractor’s fault; interest on monies due at prime rate as set forth in § 573.14; no statutory rate on monies due sub but if contractor receives interest payment, the contractor shall pay the sub a share of the interest payment proportional to payment for that sub’s work).
Iowa Private – N/A
False Claims Statute
Iowa Code Ann. §§ 685.1-685.7 – Iowa’s False Claims Act is substantially similar to the FCA. Like the FCA, Iowa designed its Act to help the state combat fraud and recover losses resulting from fraud against public agencies.
A person who is in violation of the Act will be liable to the state for a civil penalty equivalent to that allowed under the FCA, plus three times the amount of damages which the state sustains as a result of the person’s act(s), as well as costs of bringing a civil action, for each false or fraudulent claim. Id. § 685.2. Similar to the FCA, Iowa’s Act reduces the violator’s liability to not less 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 knowledge of the investigation and before the commencement of criminal prosecution, civil action, or administrative action. Id.
Licensing Requirements for Construction Managers
Iowa statutes and regulations do not mandate specific licensing requirements for construction management. The State of Iowa does, however, require construction contractors performing work within the state to be registered with the Iowa Division of Labor. See Iowa Code Ann. § 91C.2; Iowa Admin. Code r. 875-150.1(91C). A contractor is defined as “a person who engages in the business of construction.” Iowa Admin. Code r. 875-150.2(91C). The definition of “construction” references the administration or management of construction activities. Id. Although it is unclear, it may be prudent for construction managers to register as a contractor.