Enforceability of Limitation of Liability Clauses
Author: Saloni Shah and Joanna Kopcyzk
Limitations of Liability
New Hampshire courts uphold limitations of liability if they are not unconscionable or against public policy. PK’s Landscaping v. New England Tel. & Tel. Co., 519 A.2d 285, 287-88 (N.H. 1986) (noting that limitations of liability may not cover wanton and willful conduct); Lizzol v. Bros. Prop. Mgmt. Corp., Out Back Kayak, Inc., No. 15-cv-100, 2016 WL 6459570, at *6-7 (D.N.H. Oct. 31, 2016) (upholding limitation of liability in suit for injuries sustained as a result of snow machine accident). Parties to sales contracts may limit or modify remedies and warranties unless any limitation or modification is unconscionable. N.H. Rev. Stat. Ann. §§ 382-A:2-316, 382-A:2-719 (West 2022). New Hampshire courts consider contract provisions disallowing incidental and consequential damages as separate from language pertaining to repair and replacement. Thus, portions of a contract disallowing incidental and consequential damages will survive even if the provision limiting the buyer’s remedies to repair or replacement is stricken. Xerox Corp. v. Hawkes, 475 A.2d 7, 12 (N.H. 1984). New Hampshire courts later expounded upon the rule of Xerox by stating that “if an agreement between a buyer and seller includes an exclusion of consequential damages that is not unconscionable, that exclusion is not rendered inoperative when an agreed-upon limited remedy fails of its essential purpose. Under such circumstances, the buyer may seek remedies as provided elsewhere in Article 2 of the U.C.C.” BAE Sys. Info. & Elecs. Sys. Integration, Inc. v. SpaceKey Components, Inc., 941 F. Supp. 2d 197, 202 (D.N.H. 2013), aff’d, 752 F.3d 72 (1st Cir. 2014).
While New Hampshire courts generally disfavor exculpatory contracts, courts will enforce such clauses if: (1) they do not violate public policy; (2) the plaintiff understood the import of the agreement or a reasonable person in his position would have understood the import of the agreement; and (3) the plaintiff’s claims were within the contemplation of the parties when they executed the contract. Dean v. MacDonald, 786 A.2d 834, 838 (N.H. 2001); see also Lizzol v. Bros. Prop. Mgmt. Corp., No. 15-cv-100, 2017 WL 3917014, at *2 (D.N.H. Sept. 6, 2017). New Hampshire courts do not permit the state to rely on exculpatory clauses when the state fails to provide bidders sufficient time to conduct detailed studies of the contract documents and inspections of the project site. See Peter Salvucci & Sons, Inc. v. State, 268 A.2d 899, 906 (N.H. 1970). Therefore, even in the face of a general exculpatory clause, bidders are permitted to rely upon information the state furnishes if the state restricts the time for conducting an investigation. Id. (finding that contractor was justified in relying on representation from highway department to prospective bidders that free gravel and borrow would be available from national forest lands).
New Hampshire law invalidates any agreement requiring a party to hold harmless or indemnify an architect, engineer, surveyor, or his agents for their negligent actions. N.H. Rev. Stat. Ann. § 338-A:1 (West 2022). Similarly, N.H. Rev. Stat. Ann. § 338-A:2 (West 2022) invalidates any provision in certain construction contracts requiring a party to indemnify another person for injury to persons or damage to property not caused by the party or its employees, agents, or subcontractors.
Enforceability of Waiver of Consequential Damages Clauses
New Hampshire courts have not directly addressed the enforcement of contractual waivers of consequential damages in the construction context, but it appears that they may likely enforce such clauses because they have enforced contractual limitations of liability in other contexts. Generally, New Hampshire courts recognize that, “as a matter of efficiency and freedom of choice, parties should be able to contract freely about their affairs.” Pro Done, Inc. v. Basham, 210 A.3d 192, 204 (N.H. 2019) (quoting Barnes v. N.H. Karting Ass’n, 509 A.2d 151, 153 (N.H. 1986)); see Barnes, 509 A.2d at 153 (noting that “parties may bargain for various levels of risk and benefit as they see fit”). Limitation of liability clauses may be enforced in New Hampshire, but there are limitations to such enforceability. These limitations on enforceability include “wanton and willful conduct intended to [cause] harm,” PK’s Landscaping, Inc. v. New Eng. Tel. & Tel. Co., 519 A.2d 285, 287 (N.H. 1986), and where one party is “at an obvious disadvantage in bargaining power” so as to leave that disadvantaged party without a genuine choice. Barnes, 509 A.2d at 154; see also Colonial Life Ins. Co. of Am. v. Elec. Data Sys. Corp., 817 F. Supp. 235, 239–40 (D.N.H. 1993) (“Limitations of damages are generally enforced under New Hampshire law.”).
In the context of transactions for the sale of goods, the New Hampshire Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances. See N.H. Rev. Stat. Ann. §§ 382-A:2-711 – 382-A:2-714, 382-A:2-715(2). However, New Hampshire code section 382-A:2-719 permits the buyer and the seller 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. Compare Hydraform Prods. Corp. v. Am. Steel & Aluminum Corp., 498 A.2d 339, 344 (N.H. 1985) (holding that clause in seller’s delivery receipt limiting liability for consequential damages was unenforceable; the seller delayed basic shipments of required replacements so that the limitation-of-damages clause failed of its essential purpose to provide the buyer some effective remedy for breach), with Colonial Life, 817 F. Supp. at 241–42 (declining to hold that a limitation of damages, including consequential damages, was unconscionable as a matter of law where the two parties were “sophisticated business entities who extensively negotiated each provision of the Agreement in dispute . . . . To rule otherwise would disturb the parties’ agreed upon allocation of risk”).
Application of Economic Loss Doctrine
New Hampshire courts recognize the economic loss doctrine in both product liability and construction cases. See Plourde Sand & Gravel v. JGI E., Inc., 917 A.2d 1250, 1253 (N.H. 2007) (“[A] plaintiff may recover economic loss under a contract, [but] generally a cause of action in tort for purely economic loss will not lie.”); see also id. at 1255 (citing cases where no independent duty applied to allow negligence claim in “construction arena”)
Exceptions for Implied Warranty, Independent Duty, Negligent Misrepresentation
New Hampshire courts recognize an exception to the economic loss doctrine under an implied warranty theory. Lempke v. Dagenais, 547 A.2d 290, 293-94 (N.H. 1988). This exception, however, is limited to latent defects “which become manifest after the subsequent owner’s purchase and which were not discoverable had a reasonable inspection of the structure been made prior to the purchase.” Id. at 297 (quotation omitted). Importantly, “the implied warranty of workmanlike quality for latent defects is limited to a reasonable period of time.” Id.
New Hampshire also does not apply its economic loss rule in cases where an independent duty exists with respect to economic loss, even if there is contractual privity between the parties. See Plourde Sand & Gravel v. JGI E., Inc., 917 A.2d 1250, 1254 (N.H. 2007). Related to this independent duty exception, the New Hampshire Supreme Court held that negligent misrepresentation claims between parties in privity were not barred by the doctrine where such misrepresentation amounted to an inducement to enter the contract. Wyle v. Lees, 33 A.3d 1187, 1190–92 (N.H. 2011).
Strict Interpretation of Contract
New Hampshire courts strictly interpret contracts. When interpreting a written agreement, New Hampshire courts give “the language used by the parties its reasonable meaning, considering the circumstances and context in which the agreement was negotiated, when reading the document as a whole.” Lassonde v. Stanton, 956 A.2d 332, 342 (N.H. 2008) (quoting Gen. Linen Servs. v. Franconia Inv. Assocs., 842 A.2d 105 (N.H. 2004) (internal quotations omitted)). New Hampshire courts will consider the contract as a whole, give words their ordinary meaning unless it appears from the context that the parties intended a different meaning, and when parties use expansive, unrestricted language, courts will give those phrases their normal, broad reading. Moore v. Grau, 193 A.3d 272, 276 (N.H. 2018) (citing Merrimack School Dist. v. Nat’l School Bus Serv., 661 A.2d 1197, 1198-1200 (N.H. 1995)). In the absence of ambiguity, New Hampshire courts will determine the parties’ intent from the plain meaning of the language used. DiMinico v. Centennial Estates Cooperative, Inc., 238 A.3d 1004, 1008 (N.H. 2020); see also Gray v. Leisure Life Indus., 77 A.3d 1117, 1121 (N.H. 2013) (stating that express indemnity agreements are strictly construed). New Hampshire courts hold that a clause of a contract is ambiguous when the contracting parties reasonably differ as to its meaning and if said language is ambiguous, it is the New Hampshire court’s job to determine, under an objective standard, what the parties, as reasonable people, mutually understood the ambiguous language to mean. Behrens v. S.P. Const. Co., Inc., 904 A.2d 676, 681-82 (N.H. 2006). If the contract is ambiguous, the court may look to parol evidence to aid in interpreting the terms of the contract. Id. at 680. New Hampshire courts do not recognize a strict rule of contract construction that interprets ambiguous contracts against the drafter, and instead follow the rule, for non-insurance contracts, that “no presumptions are to be indulged in either for or against a party who draws an agreement.” Centronics Data Computer Corp. v. Salzman, 531 A.2d 348, 350 (N.H. 1987) (quoting Thiem v. Thomas, 406 A.2d 115, 118 (N.H. 1979)).
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).
New Hampshire – N/A
Licensing Requirements for Construction Managers
In New Hampshire, although certain specialty contractors (such as plumbers and electricians) are required to obtain licenses, there are no licensing requirements for construction managers or general contractors.