Enforceability of Limitation of Liability Clauses
Author: Saloni Shah and Joanna Kopcyzk
Limitations of Liability
Nebraska courts uphold contractual limitations of liability in commercial settings, as long as they are not unconscionable or contrary to public policy. See Ray Tucker & Sons, Inc. v. GTE Directories Sales Corp., 571 N.W.2d 64, 69-70 (Neb. 1997) (analyzing a limitation of liability clause based on whether it violated public policy and was unconscionable). Courts determine unconscionability “in light of all the surrounding circumstances, including: (1) the manner in which the parties entered the contract; (2) whether the parties had a reasonable opportunity to understand the terms of the contract; and (3) whether the important terms were hidden in a maze of fine print.” Parizek v. Roncalli Catholic High Sch. of Omaha, 655 N.W.2d 404, 408 (Neb. Ct. App. 2002).
In Peter Kiewit Sons; Inc. v. ATSER, LP, No. 8:08CV541, 2010 WL 1417811 (D. Neb. Apr. 1, 2010), the court analyzed a limitation of liability clause providing that no party shall be “liable for consequential, incidental, indirect or special damages, including but not limited to lost profits.” Id. at *3. The court found that the clause did not preclude recovery of lost profits that are direct in nature because the term “lost profits” was merely an example of consequential, incidental, indirect, or special damages, but could also be an example of direct damages. Id.; see also EMS, Inc. v. Chegg, Inc., No. 8:11CV113, 2012 WL 5412956, at *5 (D. Neb. Nov. 6, 2012) (similar).
Parties to sales contracts may also limit remedies and warranties. Neb. Rev. Stat. Ann. § UCC §§ 2-316, 2-719 (West 2021). Limitations of remedies must be conspicuous. Adams v. Am. Cyanamid Co., 498 N.W.2d 577, 588 (Neb. Ct. App. 1992). Courts will void limitations of liability if they are procedurally and substantively unconscionable. Id. at 355. In the commercial context, substantive unconscionability occurs when the contract is one-sided or overly harsh, while procedural unconscionability relates to impropriety during the contract’s formation. Id. If a remedy fails of its essential purpose, a buyer may recover consequential damages, despite any limitations excluding such damages. John Deere Co. v. Hand, 319 N.W.2d 434, 437 (Neb. 1982).
Nebraska courts permit exculpatory clauses that insulate a party from ordinary negligence. New Light Co. v. Wells Fargo Alarm Servs., 525 N.W.2d 25, 29 (Neb. 1994). Thus, clauses that exculpate parties from gross negligence or willful misconduct are unenforceable as contrary to public policy. Id. (refusing to enforce exculpatory clause in contract between restaurant and fire alarm company that exculpated the company’s gross negligence or willful and wanton misconduct in installing the system). Nebraska courts, however, do not readily find exculpatory clauses contrary to public policy. To be found invalid, the clause must be “clearly and mistakably repugnant to the public interest.” Hearst-Argyle Props., Inc. v. Entrex Commc’n Servs., Inc., 778 N.W.2d 465, 477-78 (Neb. 2010) (“The power of courts to invalidate contracts for being in contravention of public policy is a very delicate and undefined power which should be exercised only in cases free from doubt.”).
Nebraska courts have found exculpatory clauses in commercial leases to be valid. Keenan Packaging Supply, Inc. v. McDermott, 700 N.W.2d 645, 654 (Neb. Ct. App. 2005); Bedrosky v. Hiner, 430 N.W.2d 535, 540 (Neb. 1988).
Neb. Rev. Stat. Ann. § 25-21, 187 (West 2021) provides that any public or private construction contract that contains a provision to indemnify or hold another person harmless from that person’s own negligence is void as against public policy and wholly unenforceable. Id. § 25-21, 187(1). This provision, however, does not apply to construction bonds or insurance contracts. Id. Further, no professional architect, engineer or land surveyor retained to perform professional services on a construction project shall be liable in tort for any case of personal injury to or death of any employee working on a construction project occurring as a result of a third party’s violation of a safety practice, unless the professional has assumed responsibility for supervision of safety practices by contract or other conduct. Id. § 25-21, 187(2).
While Section 25-21, 187 applies to the maintenance of a building, it does not apply to the management of commercial property. Kuhn v. Wells Fargo Bank of Neb., N.A., 771 N.W.2d 103, 119 (Neb. 2009). Even if a party to a construction contract holds the other harmless for the other’s own negligence, which is prohibited under Section 25-21, 187, the entire indemnification clause is not rendered void and unenforceable; rather, only the portion of the contract prohibited by statute is stricken from the indemnification clause, and the language may be interpreted to impose liability on the indemnitor. Day v. Toman, 266 F.3d 831, 835 (8th Cir. 2001) (interpreting Nebraska law).
In Graham Constr., Inc. v. Markel Am. Ins. Co., 180 F. Supp. 3d 626 (D. Neb. 2016), the court considered a general contractor additional insured status under a subcontractor’s insurance policy and the extent of the subcontractor’s related obligations to indemnify and defend the general contractor. The subcontractor’s additional insured endorsement stated that the general contractor was an additional insured only to the extent that the subcontractor was “held liable” and coverage was limited to the extent of the subcontractor’s negligence. Id. at 634. The court found that this provision precluded coverage for the general contractor for the underlying action brought after the subcontractor’s employee suffered injuries on the project because the subcontractor could not be “held liable” in the underlying action pursuant to the Nebraska Workers’ Compensation Act. Id. at 634-38. Thus, the subcontractor had no obligation to indemnify or defend the general contractor.
Enforceability of Waiver of Consequential Damages Clauses
Nebraska courts enforce waivers of consequential damages provisions in the construction context. For instance, in 9th Street Apt. L.L.C. v. DRA Anderson Constructors Co., No. A-08-1276, 2009 WL 3260661 (Neb. Ct. App. Oct. 6, 2009) (unpublished), the court enforced a provision in which the contractor and owner mutually waived their respective rights to seek consequential damages, despite the owner’s claim that the contractor was grossly negligent in allowing a fire to start in the building. Id. at *3–6. In reaching this conclusion, the court determined that the waiver of consequential damages clause in the parties’ contract was more akin to a waiver of subrogation clause than an exculpatory clause, because the waiver was mutual, and both parties waived their rights against the other for certain damages. Id. at *5–6; see U.S. Pipeline, Inc. v. N. Nat. Gas Co., 930 N.W.2d 460, 465–66 (Neb. 2019) (“Nebraska courts have consistently upheld the right of contracting parties to privately bargain for the amount of damages to be paid in the event of a breach of contract. . . . Generally, a contractual waiver or exclusion of consequential damages will be upheld unless the provision is unconscionable.” (footnotes omitted)).
In the context of transactions for the sale of goods, the Nebraska Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances. See Neb. Rev. Stat. Ann. §§ 2-711 – 2-714, 2-715(2). However, Nebraska code section 2-719 permits the buyer and the seller to contract to limit or exclude consequential damages unless the limitation or exclusion is unconscionable or where the circumstances cause the contractually specified limited or exclusive remedy to fail of its essential purpose. Further, limitations of remedies must be conspicuous, and the “buyer must be afforded a reasonable opportunity to read it.” Adams v. Am. Cyanamid Co., 498 N.W.2d 577, 588 (Neb. Ct. App. 1992). Nebraska courts will void limitations of liability if they are procedurally and substantively unconscionable. Id. at 589–90. In the commercial context, substantive unconscionability exists when the contract or clause is “one-sided or overly harsh,” while procedural unconscionability relates to impropriety during the contract’s formation. Id. at 590. “Generally, a contract is not substantively unconscionable unless the terms are grossly unfair under the circumstances as they existed at the time the contract was formed.” Id. If a remedy fails of its essential purpose, a buyer may recover consequential damages, even if the warranty specifically excluded such damages. See John Deere Co. v. Hand, 319 N.W.2d 434, 437 (Neb. 1982).
Application of Economic Loss Doctrine
Nebraska courts recognize the economic loss doctrine. See Lesiak v. Central Valley Ag Co-op, 808 N.W.2d 67 (Neb. 2012). The economic loss doctrine would not bar tort theories in cases, where either (1) “the damages alleged were not solely economic losses or (2) there existed an independent tort duty alleged to be breached, which was separate and distinct” from the contractual duty. Id. at 83. Nebraska law has only entertained the doctrine’s application in cases of economic losses “(1) caused by a defective product, or (2) caused by an alleged breach of a contractual duty, where no tort duty exists independent of the contract itself.” Thurston v. Nelson, 842 N.W.2d 631, 643 (Neb. Ct. App. 2014). In addition, the court has “define[d] economic losses as commercial losses” and excluded personal injury or “other property” from the rule, stating that “[t]he phrase ‘other property’ means property other than the property that was the subject of the contract.” Id.
Nebraska courts have declined to adopt a liberal approach to the doctrine, specifically declining to apply the doctrine in a dispute between local farmers and a farming cooperative using the “disappointed expectations test” application of the doctrine. Lesiak, 808 N.W.2d at 84 (Neb. 2012) (“Adoption of the ‘disappointed expectations’ test would virtually destroy the ‘other property’ exception espoused by the U.S. Supreme Court and adopted by this court … because almost nothing would qualify as ‘other property’ under the ‘disappointed expectations’ test.”).
Enforceability of No Damages for Delay Clauses
No damages for delay clauses are generally enforceable in Nebraska. Roberts Constr. Co. v. State, 111 N.W.2d 767, 771 (Neb. 1961) (explaining that a contractor may recover delay damages “in the absence of a ‘no damage clause’ or other provision to the contrary in the contract, even though the contract contains a provision for an extension of time.”); see also Siefford v. Hous. Auth. of Humboldt, 223 N.W.2d 816, 823 (Neb. 1974) (recognizing that a contractor may be precluded, by virtue of a specific contractual provision eliminating damages for delay or hindrance, from recovering damages for delay caused by the hiring party).
Strict Interpretation of Contract
Nebraska courts strictly interpret contracts. In Nebraska, a contract that is clear and unambiguous is not subject to interpretation or construction and must be enforced according to its terms. Ray Anderson, Inc. v. Buck’s, Inc., 915 N.W.2d 36, 42 (Neb. 2018). Nebraska courts will give clear terms their plain and ordinary meaning as an ordinary or reasonable person would understand them. Id. Extrinsic evidence may not be used to explain terms of an unambiguous contract. Id. at 42-43; see also Lueder Constr. Co. v. Lincoln Elec. Sys., 424 N.W.2d 126, 129 (Neb. 1988) (parties’ contractual intent is determined exclusively from the documents and is not subject to construction and interpretation unless an objective basis for finding an ambiguity exists). Nebraska courts will first determine as a matter of law whether the contract is ambiguous. Davenport Ltd. P’ship v. 75th & Dodge I, L.P., 780 N.W.2d 416, 422 (Neb. 2010). If the contract is ambiguous, extrinsic evidence may be used to determine the meaning of the contract. Id. at 423. Nebraska courts hold that a contract is ambiguous “when a word, phrase or provision in the contract has, or is susceptible of, at least two reasonable but conflicting interpretations or meanings.” Ray Anderson, Inc., 915 N.W. 2d at 42 (citing Facilities Cost Mgmt. Group., LLC v. Otoe Cnty. School Dist., 66-0111, 868 N.W.2d 67, 74-75 (Neb. 2015)). The mere fact that parties have inferred or suggested differing meanings of a disputed contract does not necessarily compel a conclusion that the contract is ambiguous. Ray Anderson, Inc., 915 N.W. 3d at 42. While Nebraska courts cannot rewrite or speculate as to the terms of a contract, if ambiguity exists, a court may consider extrinsic or parol evidence to determine the meaning of the contract and provide a meaning for the ambiguous word, phrase, or provision. Davenport Ltd. P’ship, 780 N.W. 2d at 423. “Where a contract is found to be ambiguous, it is construed against the drafter.” DH-1, LLC v. City of Falls City, 938 N.W. 2d 319, 326 (Neb. 2020) (citing Beveridge v. Savage, 830 N.W. 2d 482, 487 (Neb. 2013)). Nevertheless, if a contract is unambiguous, the contract is not open to interpretation or construction against the drafter. Nogg Bros. Paper Co. v. Bickels, 446 N.W. 2d 729, 732 (Neb. 1989).
Prompt Payment Requirements (Public/Private)
Nebraska Public – Neb. Rev. Stat. §§ 81-2401 to 81-2408 (2022) (state contracts, excluding road construction) (state to prime within 45 days of receipt of services or invoice, whichever is later; interest at statutory rate); Neb. Rev. Stat. §§ 45-1201 to 45-1210 (2022) (other public contracts, excluding state) (owner must pay contractor within 30 days after receipt by the owner of a payment request provided the work performed and the request made is pursuant to the contract; contractor must pay its subcontractor (or a subcontractor must pay its subcontractor or supplier) within 10 days after receipt of payment under similar conditions; owner must release and pay all retainage for work completed in accordance with the provisions of the contract within 45 days after the project, or a designated portion thereof, is substantially complete; contractor must pay all retainage due to subcontractor within 10 days after receipt of the retainage; party failing to timely pay progress or final payments must pay 1% interest per month on the outstanding amounts starting the day after payment due date, only if party notified of interest).
Nebraska Private – Neb. Rev. Stat. §§ 45-1201-1210 (2022) (owner must pay contractor within 30 days after receipt by the owner of a payment request provided the work performed and the request made is in accordance with the contract; contractor must pay its subcontractor (or a subcontractor must pay its subcontractor or supplier) within 10 days after receipt of payment under similar conditions; owner must release and pay all retainage for work completed in accordance with the provisions of the contract within 45 days after the project, or a designated portion thereof, is substantially complete; contractor must pay all retainage due to subcontractor within 10 days after receipt of the retainage; party failing to timely pay progress or final payments must pay 1% interest per month on the outstanding amounts starting the day after payment due date, only if party notified of interest).Although the Nebraska Construction Prompt Pay Act generally applies to all commercial contracts (§ 45-1202), the Act does not apply to “improvements to real property intended for residential purposes when the residence consists of no more than four residential units.” § 45-1207.
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).
Nebraska – N/A
Licensing Requirements for Construction Managers
Although there are no specific licensing requirements for construction managers in Nebraska, and the Contractor Registration Act requires the registration of contractors. See Neb. Rev. Stat. Ann. §§ 48-2101 to -2117. Under the Contractor Registration Act, a contractor is defined as a person or entity “engaged in the business of construction” and includes “any person who is providing or arranging for labor for such activities.” Neb. Rev. Stat. Ann. § 48-2103. Accordingly, a construction manager should register as a contractor.
Also, note that “coordinating professional” is addressed by Title 110, Section 6.3 of the Nebraska Administrative Code, which states that a “Coordinating Professional is a licensed professional engineer or architect recognized as such by the project owner.” 110 Neb. Admin. Code Ch. 6, § 6.3. This section further provides that the Coordinating Professional’s role is to “coordinate communication between the design professionals related to technical documents on the project,” “act as project liaison with the governing building official,” and “verify that all design disciplines involved in a project are working in coordination with one another, and that any changes made to the design are approved by the corresponding discipline, so that life, health, safety, and welfare are not compromised.” Id.