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Enforceability of Limitation of Liability Clauses

Limitations of Liability

Missouri courts uphold limitations of liability, stating that “[s]ophisticated parties have freedom of contract—even to make a bad bargain, or to relinquish fundamental rights.”  Sports Capital Holdings, LLC v. Schindler Elevator Corp. & Kone, No. 4:12CV1108, 2014 WL 1400159, at *2 (E.D. Mo. Apr. 10, 2014).  The Supreme Court of Missouri has held that “[s]ophisticated businesses that negotiate at arm’s length may limit liability without specifically mentioning ‘negligence,’ ‘fault,’ or an equivalent.”  Purcell Tire & Rubber Co. v. Exec. Beechcraft, Inc., 59 S.W.3d 505, 509 (Mo. 2001) (en banc).  This does not mean that the clause is automatically enforceable; the clause must still be unambiguous.  Id. at 510-11.  However, Missouri courts have made clear that “[l]anguage that is ambiguous to an unsophisticated party may not be ambiguous to a sophisticated commercial entity.”  Id. at 510-11.  In Purcell, the Supreme Court of Missouri upheld a limitation of liability clause after finding both parties were sophisticated commercial entities, the contract was negotiated at arm’s length, and the language of the limitation was “clear, unambiguous, unmistakable, and conspicuously located.”  Id. at 508-09; see also World Enters., Inc. v. Midcoast Aviation Servs., Inc., 713 S.W.2d 606, 611 (Mo. Ct. App. 1986) (enforcing provision excluding incidental and consequential damages in contract to repair airplane); Liberty Fin. Mgmt. Corp. v. Beneficial Data Processing Corp., 670 S.W.2d 40, 46-50 (Mo. App. Ct. 1984) (enforcing limitation of data processing company’s liability contained in a data processing contract).

As with service contracts, parties may contractually limit or modify remedies and warranties in sales contracts.  Mo. Rev. Stat. §§ 400.2-316, 400.2-719 (West 2021); Mo. Rev. Stat. § 400.2-303 (West 2021) (addressing allocation of risk).  If a limited remedy fails of its essential purpose, a buyer may recover consequential damages, even if the limitation of remedy excludes them.  R.W. Murray, Co. v. Shatterproof Glass Corp., 758 F.2d 266, 272-73 (8th Cir. 1985) (permitting buyer of insulating panels to recover consequential damages despite manufacturer’s disclaimer where the manufacturer’s limited and exclusive warranty failed of its essential purpose). 

Exculpatory Clauses

Missouri courts disfavor exculpatory clauses but do not prohibit them, unless they are found unconscionable.  Rock Springs Realty, Inc. v. Waid, 392 S.W.2d 270, 272 (Mo. 1965); Milligan v. Chesterfield Vill. GP, LLC, 239 S.W.3d 613, 616 (Mo. Ct. App. 2007); Fuller v. TLC Prop. Mgmt., LLC, 402 S.W.3d 101, 108 (Mo. Ct. App. 2013) (exculpatory clause in lease agreement inapplicable where “a reasonable person would not understand that exculpatory clause in the Lease Agreement, when the Lease Agreement is strictly construed from end to end within its corners, clearly, explicitly, and unmistakably waives claims for injuries occurring in the parking lot”). The presence of unequal bargaining positions is insufficient by itself to demonstrate unconscionability.  Phillips v. Atl. Richfield Co., 605 S.W.2d 139, 141-42 (Mo. Ct. App. 1979); Fouts v. Regency N. Acquisition, LLC, 569 S.W.3d 463, 467 (Mo. Ct. App. 2018).  An exculpatory clause may be voided by a showing of fraud or misrepresentation in inducing the other party to enter a contract containing a clause exculpating him from liability for such actions.  Slater v. KFC Corp., 621 F.2d 932, 935 (8th Cir. 1980); Jacobs Mfg. Co. v. Sam Brown Co., 792 F. Supp. 1520, 1531 (W.D. Mo. 1992), overruled on other grounds, 19 F.3d 1259 (8th Cir. 1994).  To be enforceable, an exculpatory clause must “effectively notify a party that he or she is releasing the other party from claims arising from the other party’s own negligence.”  Alack v. Vic Tanny Int’l of Mo., Inc., 923 S.W.2d 330, 337 (Mo. 1996) (en banc).  Consumer contracts must specifically include the term “negligence,” “fault,” or equivalent words to exclude liability.  Milligan, 239 S.W.3d at 616. 

Indemnity Agreements

Missouri law provides that in contracts for public or private construction work, an agreement to indemnify or hold harmless another person from that person’s own negligence or wrongdoing is void as against public policy.  The statute, however, provides for nine exceptions:

(1) Indemnification for one’s own negligence or that of one’s subcontractors or suppliers;

(2) Requirement to purchase insurance;

(3) – (6) Various contracts relating to inter-governmental agreements and for private facilities on public property;

(7) Construction bonds or insurance contracts;

(8) Indemnification for one’s own fault if there is a requirement to purchase insurance, an opportunity to recover costs of insurance, and limitation on indemnity to the extent of insurance; and

(9) Railroads regulated by the Federal Railroad Administration.

Mo. Rev. Stat. § 434.100 (West 2021).  In United States v. Mo. Highways & Transp. Comm’n, No. 2:15-cv-04069, 2015 WL 4425699, at *3 (W.D. Miss. July 20, 2015), the court clarified that Section 434.100 only applies to the formation of construction contracts, not settlement agreements.  Id.  Accordingly, a consent decree between a contractor and the Environmental Protection Agency regarding the contractor’s permit violations on projects did not run afoul of the statute.  Id.

Enforceability of Waiver of Consequential Damages Clauses

Missouri courts enforce contractual waivers of consequential damages in the construction context.  In Union Elec. Co. v. Chicago Bridge & Iron Co., 2015 WL 1262941, at *3–5 (E.D. Mo. Mar. 19, 2015), order clarified, Union Elec. Co. v. Chicago Bridge & Iron Co., 2015 WL 2193809 (E.D. Mo. May 11, 2015), the court applied the Limitations of Liability Clause related to consequential damages in a contract to damages that arose from a negligence claim.  Generally, Missouri courts recognize that sophisticated parties have freedom of contract, which includes the freedom to make a bad bargain or to relinquish fundamental rights.  See Malan Realty Investors, Inc. v. Harris, 953 S.W.2d 624, 626 (Mo. 1997); High Life Sales Co. v. Brown–Forman Corp., 823 S.W.2d 493, 497 (Mo. 1992); Schnuck Markets, Inc. v. First Data Merch. Data Servs. Corp., 2015 WL 224993, at *6 (E.D. Mo. Jan. 15, 2015).  Thus, sophisticated parties may contractually limit future remedies.  See Malan, 953 S.W.2d at 627–28; High Life Sales, 823 S.W.2d at 497; Warner v. Sw. Bell Tel. Co., 428 S.W.2d 596, 601–02 (Mo. 1968). 

Moreover, Missouri courts enforce clear and unambiguous contract clauses that are susceptible to only one reasonable interpretation.  World Enter., Inc. v. Midcoast Aviation Servs., Inc., 713 S.W.2d 606, 610 (Mo. Ct. App. 1986).  In World Enterprises, the court discussed waivers of consequential damages in both contracts for the sale of goods and contracts for services, and held: “In contracts for the sale of goods, the Uniform Commercial Code expressly provides that consequential damages may be limited or excluded so long as the limitation or exclusion is not unconscionable.  Likewise, in contracts for services, consequential damages may be contractually limited or excluded.”  Id. at 611 (internal citation omitted); see also Liberty Fin. Mgmt. Corp. v. Beneficial Data Processing Corp., 670 S.W.2d 40, 46–50 (Mo. Ct. App. 1984) (holding that a contract’s limitation-on-liability clause was valid because it was not unconscionable and was negotiated by the parties); Roy A. Elam Masonry, Inc. v. Fru-Con Const. Corp., 922 S.W.2d 783, 791 (Mo. App. E.D. 1996) (“Provisions in private contracts limiting or excluding liability for consequential damages have been held not violative of public policy, provided the limitation or exclusion was not unconscionable.”).  Accordingly, limitations and waivers of consequential damages clauses are generally enforceable in Missouri.

In the context of transactions for the sale of goods, the Missouri Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances.  See Mo. Ann. Stat. §§ 400.2-711 – 400.2-714, 400.2-715(2).  However, Missouri code section 400.2-719 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

Missouri courts recognize the economic loss doctrine in products liability cases.  Sharp Bros. Contracting Co. v. Am. Hoist & Derrick Co., 703 S.W.2d 901, 903 (Mo. 1986) (“We … deny recovery on a theory of strict liability in tort, as a matter of policy, where the only damage is to the product sold.”); see also Dannix Painting, LLC v. Sherwin-Williams Co., 732 F.3d 902, 906 (8th Cir. 2013) (citations omitted) (“Under Missouri law, remedies for economic loss sustained by reason of damage to or defects in products sold are limited to those under the warranty provisions of the UCC. Missouri’s economic loss doctrine bars recovery for negligence, and strict liability ‘where the only damage is to the product sold.’”).  Missouri courts have found various fraud claims to be outside the scope of the doctrine, however.  See, e.g., Anderson v. Ford Motor Co., 2017 WL 6733972, at *4 (W.D. Mo. Dec. 29, 2017) (citing Missouri state and federal cases in holding that fraudulent inducement claims “are widely interpreted to present an exception to the economic loss doctrine”); MEA Fin. Enters., LLC v. Fiserv Solutions, Inc., 2013 WL 12155467, at *3 (W.D. Mo. Oct. 16, 2013) (declining to apply economic loss rule to fraudulent misrepresentation claim).  In addition, the doctrine does not apply where the parties have a “special relationship,” such as principal and insurance broker.  See, e.g., Autry Morlan Chevrolet Cadillac, Inc. v. RJF Agencies, Inc., 32 S.W.3d 184, 193 (Mo. Ct. App. 2010).  Finally, a Missouri federal court also found the doctrine not to apply to a tortious interference claim.  MEA, 2013 WL 12155467, at *3.

Application to Construction Cases

The “roots” of the economic loss doctrine in Missouri arise from a construction case, Crowder v. Vandendeale, 564 S.W.2d 879 (Mo. 1978), rev’d on other grounds, Sharp Bros., 70 S.W.2d at 903.  There, a home buyer sued its contractor for an alleged failure to construct the home in a workmanlike manner, and the Supreme Court of Missouri held that the proper remedy was based upon a theory of implied warranty, not negligence.  Id. at 880–84.  More recently, Missouri courts have denied recovery for purely economic loss in tort actions between construction professionals for negligent performance on a contract.  See Fleischer v. Hellmuth, Obata & Kassabaum, 870 S.W.2d 832, 834 (Mo. Ct. App. 1993) (“[A]n architect owes no tort duty of care and is not liable to a general contractor or construction manager for damages for economic losses arising as a result of the architect’s negligent performance of its contract with the owner.”). 

While Missouri courts have focused most of their attention on applying the economic loss doctrine to products liability cases, the doctrine remains viable in construction cases.  See, e.g., Autry Morlan Chevrolet Cadillac, 32 S.W.3d at 193 (describing the doctrine as applying to “effort[s] to impose tort liability on the builder of a home … or to recover in tort for the failure of a product which is alleged to be defective.”) (emphasis added). 

Enforceability of No Damages for Delay Clauses

No damages for delay clauses are unenforceable in public works contracts pursuant to Mo. Rev. Stat § 34.058(2), which provides, “Any clause in a public work contract that purports to waive, release, or extinguish the rights of a contactor to recover costs or damages, or obtain an equitable adjustment, for delays in performing such contract, if such delay is caused in whole, or in part, by acts or omissions within the control of the contracting public entity or persons acting on behalf thereof, is against public policy and is void and unenforceable.”  Mo. Rev. Stat § 34.058(2).

For private construction contracts, Missouri courts do not appear to have explicitly addressed whether no damages for delay causes are enforceable.  However, the Court of Appeals of Missouri noted in Roy A. Elam Masonry, Inc. v. Fru-Con Constr. Corp. that other jurisdictions generally hold that such clauses are enforceable.  922 S.W.2d 783, 789 (Mo. Ct. App. 1996).  Moreover, in Jamison Elec., LLC v. Hankins Constr. Co., the U.S. District Court for the Eastern District of Missouri predicted that Missouri courts would enforce such clauses as written, subject to an active interference exception.  No. 4:12-CV-1746 CDP, 2014 WL 7408944 at *10 (E.D. Miss. Dec. 31, 2014).

Strict Interpretation of Contract

Missouri courts strictly interpret contracts.  It is the most basic principle of contract law that parties are bound by the terms of the contracts they sign and Missouri courts will enforce contracts according to their plain meaning unless induced by fraud, duress, or undue influence.  Util. Serv. & Maint., Inc. v. Noranda Aluminum, Inc., 163 S.W.3d 910, 913 (Mo. 2005); see also Nitro Distrib., Inc. v. Dunn, 194 S.W.3d 339, 345 (Mo. 2006) (stating that to be bound as a third-party beneficiary, the terms of the contract must clearly express intent to benefit that party or an identifiable class of which the party is a member).  Missouri courts “will not create an ambiguity by using extrinsic or parol evidence.”  City of St. Joseph v. Lake Contrary Sewer Dist., 251 S.W.3d 362, 368 (Mo. Ct. App. 2008) (quoting Lupo v. Shelter Mut. Ins. Co., 70 S.W.3d 16, 20 (Mo. Ct. App. 2002)).  Thus, if the contract is unambiguous the courts will look to the contract language to gather the intent of the parties, but if there is ambiguity, extrinsic evidence may be introduced.  Finova Cap. Corp. v. Ream, 230 S.W.3d 35, 48-49 (Mo. Ct. App. 2007).  Missouri courts hold that a contract is ambiguous and in need of the court’s interpretation only if its terms are susceptible to honest and fair differences.  Ethridge v. TierOne Bank, 226 S.W.3d 127, 131 (Mo. 2007).  Put another way, language is ambiguous if it is reasonably open to different constructions and ambiguity will exist when there is duplicity, indistinctness, or uncertainty in the meaning of the contract language.  Id.  Missouri courts follow the general contract canon that ambiguities are construed against the drafter, but the application of this rule only occurs when other means of contract construction fail and the intent of the parties cannot be ascertained from other sources.  Mays v. Hodges, 271 S.W.3d 607, 612 (Mo. Ct. App. 2008) (quoting Eveland v. Eveland, 156 S.W. 3d 366, 369 (Mo. Ct. App. 2004)). 

Prompt Payment Requirements (Public/Private)

Missouri Public – Mo. Rev. Stat. § 34.057 (2022) (owner to prime within 30 days of invoice receipt or receipt of services or date contractor approves owner’s estimate, whichever is later; final payment 30 days from completion; prime to sub/sub to lower tier 15 days from payment; interest at 1.5% per month).

Missouri Private – Mo. Rev. Stat. § 431.180 (2022) (payment as agreed by contract; court may award up to 1.5% interest per month and reasonable attorneys’ fees to prevailing party).

False Claims Statute

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).

Missouri – N/A 

Licensing Requirements for Construction Managers

In Missouri, there are no statewide licensing requirements for general contractors or construction managers.  Instead, Missouri contractors must be licensed at the local level, with licensing requirements varying by municipality.  The Missouri legislature, however, has defined construction management services in the context of public works projects as including:  project planning; making design recommendations; budgeting construction costs; assisting the public owner in soliciting and analyzing bids and awarding contracts; scheduling, coordinating, and observing construction work; reviewing and processing payment applications; and processing change order requests.  Mo. Ann. Stat. § 8.675.

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