Enforceability of Limitation of Liability Clauses
Author: Saloni Shah and Joanna Kopcyzk
Limitations of Liability
Absent an overwhelming public policy issue, Ohio courts will not interfere with the allocation of risk embodied in contractual relationships. See Royal Indem. Co. v. Baker Protective Servs., Inc., 515 N.E.2d 5, 7 (Ohio Ct. App. 1986); Nahra v. Honeywell, Inc., 892 F. Supp. 962, 969 (N.D. Ohio 1995) (“While viewed critically by the courts, limitation of liability clauses (including exculpatory clauses) may be freely bargained for in Ohio.”). Parties to sales contracts may limit or modify remedies and warranties, absent unconscionability. Ohio Rev. Code Ann. §§ 1302.29, 1302.93 (West 2022); see also Indiana Michigan Power Co. v. Siemens Energy, Inc., No. 2:12-CV-00861, 2013 WL 4537066, at *8 (S.D. Ohio Aug. 27, 2013) (noting that courts are reluctant to find unconscionable limitations in commercial contracts).
Ohio courts uphold exculpatory clauses unless they are unconscionable, vague, or ambiguous. See Orlett v. Suburban Propane, 561 N.E.2d 1066, 1068-69 (Ohio Ct. App. 1989). Courts are likely to enforce exculpatory clauses “(1) when the contracting parties stand in roughly equal bargaining positions, or (2) even if great disparity exists in the relative positions of the contracting parties, when nonexculpatory contract options are provided for a greater consideration, instead of accepting the risk of the superior party’s negligence.” Id. An exculpatory provision must be clearly and unequivocally expressed, and in determining its enforceability, the court will look at the “general terms of the entire contract, considered in light of what an ordinary, prudent and knowledgeable party of the same class would understand.” Whitson v. One Stop Rental Tool & Party, 84 N.E. 3d 84, 89 (Ohio Ct. App. 2017). Exculpatory clauses apply with equal force to construction contracts. In Nicholson v. Turner/Cargile, 669 N.E.2d 529 (Ohio Ct. App. 1995), the Ohio Court of Appeals held that a contract provision shielded a design engineering firm from liability relating to the death of a subcontractor’s employee. Id. at 533.
As with contracts in general, exculpatory clauses are to be strictly construed against the drafter. Orlett, 561 N.E.2d at 1067. Exculpatory clauses cannot release willful or wanton conduct. Brown-Spurgeon v. Paul Davis Sys. of Tri-State Area, Inc., No. CA2012-09-069, 2013 WL 1883214, at *9 (Ohio Ct. App. May 6, 2013) (finding that exculpatory clause contained in home restoration company’s work authorization agreement did not exempt it from liability for theft by subcontractor’s employee).
If a contract provision uses both limitation of liability language and exculpatory language, the court will look at the structural focus of the provision to determine its focus. For example, in Metro. Prop. & Cas. Ins. Co. v. Pest Doctor Sys., Inc., No. 3:14-cv-143, 2015 WL 4945767 (S.D. Ohio Aug. 20, 2015), the court addressed the presence of exculpatory and limitation-of-liability provisions within the same paragraph to determine whether the parties contracted for no liability or for a specific dollar amount of liability. Id. at *7. Because the paragraph focused on disclaiming liability for all damage, the court found that the exculpatory clause controlled the action. Id.
Ohio Rev. Code Ann. § 2305.31 (West 2022) invalidates provisions in construction agreements that purport to indemnify the promisee against damages arising out of bodily injury to persons or damage to property initiated or proximately caused by or resulting from the promisee’s negligence. This provision, however, does not invalidate an agreement to indemnify for legal fees and costs. Hehman v. Maxim Crane Works, No. CA2010-01-009, 2010 WL 3002383, at *4 (Ohio Ct. App. Aug. 2, 2010); Moore v. Dayton Power & Light Co., 650 N.E.2d 127, 129-30 (Ohio Ct. App. 1994) (finding indemnification clause between a utility and contractor void except for the portion requiring the contractor to indemnify and save harmless the utility from all “costs and expenses” arising from injuries to persons because it did not purport to indemnify the utility against liability from damages and therefore was beyond the scope of Section 2305.31). Nor does this provision apply to insurance contracts. Cincinnati Ins. v. St. Paul Protective Ins. Co., No. 3:06 CV 2729, 2007 WL 2891421, at *4 n.1 (N.D. Ohio Sept. 28, 2007). A subcontractor’s agreement to have the contractor named as an additional insured under the subcontractor’s liability policies does not violate Section 2305.31. Buckeye Union Ins. Co. v. Zavarella Bros. Constr. Co., 699 N.E.2d 127, 128 (Ohio Ct. App. 1997).
Enforceability of Waiver of Consequential Damages Clauses
Ohio courts have directly addressed, and typically enforce, contractual waivers of consequential damages in the construction context. For example, in H.C. Nutting Co. v. Midland Atlantic Development Co., 5 N.E.3d 125 (Ohio Ct. App. 2013), the court vacated an arbitration award because the award, on its face, included consequential damages expressly precluded by the parties’ agreement. See id. at 129. Thus, absent an “overwhelming public policy” issue, Ohio courts will generally not interfere with the allocation of risk embodied in contractual relationships. See Royal Indem. Co. v. Baker Prot. Servs., Inc., 515 N.E.2d 5, 7 (Ohio Ct. App. 1986) (“Absent some overwhelming public policy such as the concept of unconscionability . . . Ohio courts have held the concept of ‘freedom of contract’ to be fundamental to our society.”); see also Settle-Muter Elec., Ltd. v. Siemens Indus., Inc., No. 15-cv-2470, 2016 WL 5025747, at *2–3 (S.D. Ohio Sept. 20, 2016) (upholding a contract’s unambiguous consequential damages waiver); but see Ohio Rev. Code. Ann. § 2305.31 (prohibiting indemnity agreements in construction-related contracts whereby the promisor agrees to indemnify the promisee for damages caused by or resulting from the negligence of the promise).
In the context of transactions for the sale of goods, the Ohio Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances. See Ohio Rev. Code Ann. §§ 1302.85 – 1302.88, 1302.89. However, Ohio code section 1302.93 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 Chemtrol Adhesives, Inc. v. Am. Mfrs. Mut. Ins. Co., 537 N.E.2d 624, 639 (Ohio 1989) (“[L]iability for consequential damages may be limited or excluded ‘unless the limitation or exclusion is unconscionable.’” (quoting Ohio Rev. Code Ann. § 1302.93(c)).
Application of Economic Loss Doctrine
Ohio courts recognize the economic loss doctrine. See, e.g., Corporex Dev. & Constr. Mgmt. v. Shook, Inc., 835 N.E.2d 701, 704 (Ohio 2005) (“The economic loss rule generally prevents recovery in tort of damages from purely economic loss.”); Queen City Terminals, Inc. v. Gen. Am. Transp. Co., 653 N.E.2d 661, 667-68 (Ohio 1995) (“Indirect economic damages that do not arise from tangible physical injury to persons or from tangible property may only be recovered in contract.”). The economic loss rule in Corporex has been interpreted to only apply to negligence actions, however, and so the rule will not prevent recovery for intentional torts or strict liability. ITS Financial, LLC v. Advent Financial Servs., LLC, 823 F. Supp. 2d 772, 783 (Ohio 2011) (permitting fraud claim to survive summary judgment where claim seeks damages “distinct from and in addition to” breach of contract damages); see also Ferro Corp. v. Blaw Knox Food & Chem. Equip. Co., 700 N.E.2d 94, 100 (Ohio Ct. App. 1997) (interpreting Queen City to only apply to negligence claims); Aero Fulfillment Servs. Corp. v. Oracle Corp., No. 1:15-CV-287, 2016 WL 2853581, at *6 (S.D. Ohio May 16, 2016) (finding fraud and fraudulent inducement claims involved duties separate from those created by contract).
Ohio Courts have applied the economic loss rule in construction law cases regarding design professionals, maintaining that “in the absence of privity of contract no cause of action exists in tort to recover economic damages against design professionals involved in drafting plans and specifications.” Floor Craft Floor Covering, Inc. v. Parma Cmty. Gen. Hosp. Ass’n, 560 N.E.2d 206, 212 (Ohio 1990).
Exception Due to Pre-Existing Duty
Ohio courts recognize an exception to the economic loss rule (and the privity requirement) for claims based on negligent misrepresentations by non-contracting third parties so long as that third party is “a member of a limited class whose reliance on the  representation is specifically foreseen.” Hadden View Invest. Co. v. Coopers & Lybrand, 436 N.E.2d 212, 215 (Ohio 1982) (permitting tort claim against accountant). As the Supreme Court of Ohio later noted, however, “[l]iability in Haddon View was based exclusively upon [the] discrete, preexisting duty in tort and not upon any terms of a contract or rights accompanying privity.” Corporex, 835 N.E.2d at 705 (distinguishing contractor claim against owner from claim against accountant).
Enforceability of No Damages for Delay Clauses
No damages for delay clauses are unenforceable as against public policy. Pursuant to Ohio Rev. Code Ann. § 4113.62(C)(1), any provision of a construction contract that “waives or precludes liability for delay . . . or that waives any other remedy” is void and unenforceable insofar as it “is a proximate result of the owner’s act or failure to act.” See also Ohio Rev. Code Ann. § 4113.62(C)(2) (applying the terms of § 4113.62(C)(1) to subcontract agreements).
Strict Interpretation of Contract
Ohio courts strictly interpret contracts. The court’s primary role is to give effect to the intent of the parties at the time of contract formation. Sunoco, Inc. (R&M) v. Toledo Edison Co., 953 N.E. 2d 285, 292 (Ohio 2011). Ohio courts will give the plain and ordinary meaning of the language used in the contract. Id. If the language is clear and unambiguous, Ohio courts consider the four corners of the written contract in interpreting parties’ contractual intent. See, e.g., Aultman Hosp. Ass’n. v. Cmty. Mut. Inc., 544 N.E. 2d 920 (Ohio 1989); see also Beverage Holdings, L.L.C. v. 5701 Lombardo, L.L.C., 150 N.E. 3d 28, 31 (Ohio 2019) (“[I]f the language of a contract is plain and unambiguous, [Ohio courts] enforce the terms as written, and  may not turn to evidence outside the four corners of the contract to alter its meaning.”). However, “where a contract is ambiguous, a court may consider extrinsic evidence to ascertain the parties’ intent.” Westfield Ins. Co. v. Galatis, 797 N.E. 2d 1256, 1261 (Ohio 2003) (citations omitted). Ohio courts give provisions their ordinary meaning unless “manifest absurdity results or unless some other meaning is clear from the face or overall contents of the agreement.” Beverage Holdings, 150 N.E. at 32 (citing Cincinnati Ins. Co. v. Anders, 789 N.E. 2d 1094, 1098 (Ohio 2003)). If ambiguity exists, Ohio courts will consider extrinsic evidence including the circumstances surrounding the parties at the time the contract was made, the objectives the parties intended to accomplish by entering into the contract, and any acts by the parties demonstrating the construction they gave to the agreement. Lutz v. Chesapeake Appalachia, L.L.C., 71 N.E. 3d 1010, 1012 (Ohio 2016) (citing U.S. Fid. & Guar. Co. v. St. Elizabeth Med. Ctr., 716 N.E. 2d 1201 (Oh. App. Ct. 1998)). Ohio courts follow the general rule that ambiguities are generally resolved against the drafter when there is unequal bargaining power in entering into the contract. Westfield, 797 N.E.2d at 1262. However, construing ambiguities against the drafter “is a secondary rule of construction that comes into play only when an ambiguity remains after a court has looked to extrinsic evidence.” Beverage Holdings, 150 N.E. at 42 n. 3.
Prompt Payment Requirements (Public/Private)
Ohio Public – Ohio Rev. Code Ann. §§ 153.12 to .14 (West 2022) (owner to prime per contract or within 30 days for approved estimates; interest on amounts due prime at average of prime rate established at the commercial banks in the city of over one hundred thousand population that is nearest the construction project); Ohio Rev. Code Ann. § 4113.61 (West 2021) (prime to sub/sub to lower tier within 10 days of receipt of payment; interest at 18% per annum).
Ohio Private – Ohio Rev. Code Ann. § 4113.61 (West 2022) (no provision for owner; prime to sub/sub to lower tier within 10 days of receipt of payment; interest at 18% per annum).
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).
Ohio – N/A
Licensing Requirements for Construction Managers
In Ohio, there is no express licensing requirement for construction managers, and general contractors are typically licensed at the local level. On the statewide level, the State of Ohio only requires contractors performing services related to heating, ventilation, air conditioning, refrigeration, electrical, plumbing, and hydronics contracting to obtain a license. Ohio Rev. Code Ann. § 4740.01(A). plumbing, and hydronics contracting to obtain a license. Ohio Rev. Code Ann. § 4740.01(A).