Enforceability of Limitation of Liability Clauses
Author: Saloni Shah and Joanna Kopcyzk
Limitation of Liability
Kansas courts routinely uphold limitations of liability, even if they are unwise or disadvantageous to a party. Moler v. Melzer, 942 P.2d 643, 645 (Kan. Ct. App. 1997) (upholding clause in home purchaser’s contract with building inspector that limited damages to the cost of the inspection); Wood River Pipeline Co. v. Willbros Energy Servs. Co., 738 P.2d 866, 869-72 (Kan. 1987) (enforcing limitation of liability that excluded consequential damages in a contract to construct pipeline). A court will not uphold such a contract provision if it is induced by fraud, is unconscionable or is ambiguous. Moler, 942 P.2d at 645. Kansas courts evaluate multiple factors to determine if a contract is unconscionable. See Wille v. Sw. Bell Tel. Co., 549 P.2d 903, 906-07 (Kan. 1976) (discussing five factors).
Parties are likewise free to limit or exclude liability and warranties in sales contracts. Kan. Stat. Ann. § 84-2-719(1)-(3) (West 2021); Kan. City Structural Steel Co. v. L.G. Barcus & Sons, Inc., 535 P.2d 419, 423-24 (Kan. 1975) (enforcing limitation of liability clause in contract to purchase steel).
“[E]ffective disclaimer of liability for one’s own negligence, waiver of liability of the other party for the latter’s negligence, or indemnification of the other party for its negligence is subject to strict construction and explicit expression.” Elite Prof’ls Inc. v. Carrier Corp., 827 P.2d 1195, 1202 (Kan. Ct. App. 1992). Kansas law disfavors contracts for exemption of liability from negligence. These clauses are strictly construed against the party relying on them. Mid-America Sprayers, Inc. v. United States Fire Ins. Co., 660 P.2d 1380, 1383 (Kan. Ct. App. 1983). Despite this strict construction, exculpatory provisions “voluntarily entered into by parties standing on equal footing are enforceable as between the contracting parties themselves.” Abraham v. Paramount Antique Mall, LLC, 337 P.3d 73, 2014 WL 5849251 at *4 (Kan. Ct. App. 2014) (Table) (quoting N.H. Ins. Co. v. Fox Midwest Theaters, Inc., 457 P.2d 133 (1969)).
Kansas law will not enforce indemnification provisions construction contracts requiring the promisor to indemnify the promisee for the promisee’s negligence or intentional acts or omissions as contrary to public policy. Kan. Stat. Ann. § 16-121 (West 2021); see also Oakes v. Repcon, Inc., No. 16-1074, 2017 WL 951159, at *2-3 (D. Kan. Mar. 10, 2017) (questioning whether statute applied to contract between gas welder and oil refinery).
Enforceability of Waiver of Consequential Damages Clauses
Kansas courts have directly addressed the enforcement of waiver of consequential damages clauses in the construction context. In Wood River Pipeline Co. v. Willbros Energy Servs. Co., 738 P.2d 866, 869–72 (Kan. 1987), the Court enforced a handwritten waiver of consequential damages clause in a contract for the construction of a pipeline and granted summary judgment in favor of contractor in regards to owner’s claim for consequential damages following the rupture of the pipeline. In Neighbors Constr. Co., Inc. v. Woodland Park at Soldier Creek, LLC, 284 P.3d 1057, 1073 (Kan. Ct. App. 2012), the court enforced an AIA A201 waiver of consequential damages to the extent that it did not include a waiver of attorney’s fees. Generally, Kansas courts routinely uphold contracts that otherwise limit one party’s liability to the other. See Moler v. Melzer, 942 P.2d 643, 645 (Kan. Ct. App. 1997) (holding a limitation of liability clause as enforceable because it was “a clear expression of [defendant’s] intent to limit liability” and was not illegal, against public policy, or induced by fraud); Belger Cartage Serv., Inc. v. Holland Const. Co., 582 P.2d 1111, 1118–19 (Kan. 1978) (explaining that the policy of law in general is to permit mentally competent parties to arrange their own contracts and to fashion their own remedies when no fault or overreaching is practiced).
In the context of transactions for the sale of goods, the Kansas Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances. See Kan. Stat. Ann. §§ 84-2-711 – 84-2-714, 84-2-715(2). However, Kansas code section 84-2-719 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
Kansas law had traditionally recognized the economic loss doctrine and in general “a plaintiff [in Kansas] seeking recovery for economic losses only cannot proceed under theories sounding in tort.” Rand Constr. Co. v. Dearborn Mid-W. Conveyor Co., 944 F. Supp. 2d 1042, 1062 (D. Kan. 2013) (citing Prof. Lens Plan Inc. v. Polaris Leasing Corp., 675 P.2d 887 (Kan. 1984); see also Koss Constr. v. Caterpillar, Inc., 960 P.2d 255, 259 (Kan. Ct. App. 1998) (“Under Kansas law, the economic loss doctrine applies to a claim for damage to the product itself.”). That said, the Supreme Court of Kansas has created an exception for homeowners in the construction context, declining to apply the doctrine to “bar claims by homeowners seeking to recover economic damages resulting from negligently performed residential construction services.” David v. Hett, 270 P.3d 1102, 1114 (Kan. 2011). Products liability claims in Kansas are governed by the Kansas Product Liability Act, which limits the definition of “harm” that serves as the basis for liability in such actions to property damage, personal injury, and/or emotional harm, and specifically precludes recovery for “direct or consequential economic loss” in products liability cases. Kan. Stat. Ann. § 60-3302(d).
The Corvias Decision
In 2019, the Supreme Court of Kansas modified the application of the economic loss doctrine and the Kansas Product Liability Act. In Corvias Military Living, LLC v. Ventamatic, Ltd., 450 P.3d 797 (Kan. 2019), a construction firm sued a ceiling fan manufacturer based on allegedly defective fans. 450 P.3d at 799. The defendants sought to dismiss the claims based on the economic loss doctrine and the lower courts disagreed on the application of the doctrine. Id. at 800–02. Interpreting the Kansas Product Liability Act, the Supreme Court of Kansas held that the statute and the economic loss rule did not bar the claims. In so holding, the Supreme Court noted that the Kansas Product Liability Act permitted recovery for harm based upon “damage to property” and held that “[g]iving these words their ordinary meaning, it is clear the Legislature intended to allow recovery for damage to any property, even damage to the product itself.” Id. at 803. The Court also held that the economic loss rule did not bar the plaintiff’s claim for unjust enrichment, even if such claims are based upon economic losses. Id. at 803–04. In so doing, the Supreme Court of Kansas severely limited the application of the economic loss doctrine in Kansas.
In addition to the limitations to the economic loss rule identified above, the Supreme Court of Kansas has held that tort claims based upon negligent misrepresentation are not barred by the economic loss doctrine. Rinehart v. Morton Bldgs., Inc., 305 P.3d 622, 632–33 (Kan. 2013) (holding that a company’s negligent misrepresentation claims against the provider of a pre-engineered building, with whom it had no contractual relationship, were not barred by the economic loss doctrine). In adopting Section 552(1) of the Restatement (Second) of Torts, the Rhinehart court recognized that “[o]ne who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.” Id. at 630. Federal courts in Kansas have extended the holding in Rhinehart in finding that fraudulent misrepresentation claims are similarly not barred by the economic loss doctrine. See Am. Maplan Corp. v. Heibei Quanen High-Tech Piping Co., Ltd., No. 17-1075-JTM, 2018 WL 3240970, at *6 (D. Kan. July 3, 2018); Cinema Scene Mktg. & Promotions, Inc. v. Calidant Capital, LLC, No. 2:16-CV-2759-JAR, 2017 WL 3730475, at *4-*5 (D. Kan. Aug. 30, 2017).
Enforceability of No Damages for Delay Clauses
Pursuant to the Kansas Fairness in Public Construction Contract Act, “Any provision in a contract that purports to waive the rights of a party to the contract to collect damages for delays caused by another party to the contract shall be void, unenforceable and against public policy.” Kan. Stat. Ann. § 16-1907. However, in private contracts such clauses are enforceable. See Kansas City Structural Steel Co. v. L. G. Barcus & Sons, Inc., 535 P.2d 419, 422 (Kan. 1975). Additionally, in 2010, the U.S. District Court for the District of Kansas declined to recognize an exception for uncontemplated or unreasonable delays. See Law Co. v. Mohawk Constr. and Supply Co., 702 F. Supp. 2d 1304, 1323-25 (D. Kan. 2010).
Strict Interpretation of Contract
Kansas courts strictly interpret contracts. In Kansas, the primary rule in interpreting written contracts is to ascertain the intent of the parties. Liggatt v. Employers Mut. Cas. Co., 46 P.3d 1120, 1125 (Kan. 2002). If the terms of the contract are clear and unambiguous, there is no room for rules of construction, and the intent of the parties is determined from the contract itself. Russell v. Treanor, 466 P.3d 481, 486 (Kan. 2020) (citing Trear v. Chamberlain, 425 P.3d 297, 301-302 (Kan. 2018)).; see also Wood River Pipeline Co. v. Willbros Energy Servs. Co., 738 P.2d 866, 871 (Kan. 1987) (“The intent of the parties and the meaning of a contract are to be determined from the plain, general, and common meaning of terms used.”). “[I]n construing a written instrument, language used anywhere in the instrument should be considered and construed in harmony with all provisions and not in isolation.” Wood River, 738 P.2d at 871. Ambiguity exists if the contract contains provisions or language of doubtful or conflicting meaning. Liggatt, 46 P.3d at 1125. Stated differently, “[a]mbiguity in a written contract does not appear until the application of pertinent rules of interpretation to the face of the instrument leaves it genuinely uncertain which one of two or more meanings is the proper meaning.” Catholic Diocese of Dodge City v. Raymer, 840 P.2d 456, 459 (Kan. 1992). Before a contract is determined to be ambiguous, the language must be given a fair, reasonable, and practical construction. Liggatt, 46 P.3d at 1125. If the language is ambiguous, the Kansas courts will generally construe the contract against the drafter. Shelter Mut. Ins. Co. v. Williams, 804 P.2d 1374, 1379 (Kan. 1991) (“In construing contracts, an ambiguity in the language of the contract will be strictly construed against the party who drafted the provision.”). However, the general rule of construing the contract against the drafter is of little consequence where the parties are of equal bargaining power and each has the opportunity to fully examine the proposed contract provisions before it is executed. Wood River, 738 P.2d at 872.
Prompt Payment Requirements (Public/Private)
Kansas Public – Kan. Stat. Ann. §§ 75-6401 to 75-6405 (2022) (governing agency to vendor 30 days after invoice unless otherwise agreed; interest at 1.5% per month).
Kansas Private –
Kan. Stat. Ann. §§ 16-1801 to 16-1807 (2022) (owner to prime 30 days after invoice for progress payments; final payment within 30 days of substantial completion; prime to sub/sub to lower tier 7 business days after payment; owner pays interest to prime at 18% per annum beginning on 31st day after receipt of payment request; prime pays interest to sub/sub to lower tier at 18% per annum beginning on eighth business day after receipt of payment; fees to prevailing party).
False Claims Statute
Kan. Stat. Ann. §§ 75-7501 to 75-7511 – The Kansas False Claims Act mirrors the FCA. Kansas imposes a civil penalty range of $1,000 to $11,000, treble the amount of damages sustained by the state or political subdivision, and liability for all reasonable costs and attorney fees incurred in a civil action brought to recover any of those penalties or damages. Id. § 75-7503. Similar to the FCA, the Kansas 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. The Act also imposes liability on those persons who inadvertently benefit from submission of a false claim and fail to disclose the false claim within a reasonable time after discovery of the false claim. Id.
Licensing Requirements for Construction Managers
In Kansas, there are no statewide licensing requirements for construction contractors or construction managers, with the exception of asbestos abatement and water well drilling. While Kansas has no general statewide construction manager licensing requirements, all non-resident contractors performing work in Kansas who are not generally authorized to do business in Kansas must register any contract valued over $10,000 with the Kansas Secretary of State. Kan. Stat. Ann. § 79-1009. Some counties and municipalities have contractor registration or licensing requirements for general contractors. Local licensing requirements vary by municipality.