Enforceability of Limitation of Liability Clauses
Author: Saloni Shah and Joanna Kopcyzk
Limitations of Liability
In Oklahoma, limitation of liability provisions in contracts are enforceable, but with the following restrictions (1) they may only operate to limit liability for ordinary negligence as opposed to gross negligence, and (2) the parties to the contract must not have been in an unequal bargaining position. Elsken v. Network Multi-Family Sec. Corp., 838 P.2d 1007, 1009-11 (Okla. 1992). A party, however, cannot rely upon a limitation of liability to foreclose a duty to third parties. Grice v. CVR Energy, Inc., No. 16-cv-459, 2017 WL 1100906, at *4 (N.D. Okla. Mar. 23, 2017). Parties to sales contracts may limit or modify remedies and warranties, absent unconscionability. Okla. Stat. Ann. tit. 12A, §§ 2-316, 2-719 (West 2021). A buyer may recover consequential damages if the limited remedy fails of its essential purpose. Precision Aggregate Prods., L.L.C. v. CMI Terex Corp., No. CIV-06-1146-L, 2008 WL 183079, at *6 (W.D. Okla. Jan. 17, 2008) (quoting Osburn v. Bendix Home Sys., Inc., 613 P.2d 445, 449-50 (Okla. 1980)).
Limitations of liability are generally not permitted in contracts with the state. Okla. Att’y Gen. Op. No. 06-11, 2006 WL 1987826, at *5-6 (Apr. 14, 2006) (“To the extent that the limitation of liability contained herein is construed by a court of competent jurisdiction to be a limitation of liability in violation of Oklahoma law, such limitation of liability shall be void”).
Exculpatory clauses are enforceable in Oklahoma as long as: “(1) the intent to excuse one party from the consequences of his or her own negligence is expressed in clear, definite, and unambiguous language; (2) the agreement was made at arm’s length with no vast disparity of bargaining power between the parties; and (3) the exculpation is not contrary to statute or public policy.” Manning v. Brannon, 956 P.2d 156, 158 (Okla. Civ. App. 1997). For example, in Kinkead v. W. Atlas Int’l, Inc., 894 P.2d 1123 (Okla. Ct. App. 1993), the Court of Appeals of Oklahoma upheld an exculpatory clause in a contract between an oil and gas well operator and a wireline service provider because there was no disparity in bargaining power and such clauses were common in both small and large oil and gas companies. Id. at 1128-29. Oklahoma courts will not enforce exculpatory contract clauses that attempt to limit damages that result from fraud, willful injury, gross negligence, or a violation of the law. Schmidt v. United States, 912 P.2d 871, 872 (Okla. 1996). Nor can the state rely upon an exculpatory clause if it does not allow bidders sufficient time to make a personal study of project conditions. Cook v. Okla. Bd. of Pub. Affairs, 736 P.2d 140, 148 (Okla. 1987).
Oklahoma law invalidates a provision in a construction agreement that requires a party to indemnify another party against death or bodily injury or property damage arising from the indemnitee’s own negligence. Okla Stat. Ann. tit. 15, § 221 (West 2021). This statute does not affect provisions requiring a party to indemnify another party against death or bodily injury or property damage, as long as the indemnification does not “exceed any amounts that are greater than that represented by the degree or percentage of negligence or fault attributable to the indemnitor.” Id. § 221(B). Nor does the statute apply to construction bonds or requirements to purchase project-specific insurance policies. Id. § 221(C). An agreement to indemnify another against an act that is known at the time to be unlawful is invalid. Id. § 422.
Enforceability of Waiver of Consequential Damages Clauses
Oklahoma courts have not directly addressed the enforcement of contractual waivers of consequential damages in the construction or engineering context, but it appears that they may likely enforce such clauses because they have enforced contractual limitations of liability in other contexts. Generally, limitation-of-liability provisions in contracts are enforceable in Oklahoma provided (1) they do not operate to limit liability for gross negligence and (2) the parties to the contract were not in an unequal bargaining position. See Arnold Oil Props., L.L.C. v. Schlumberger Tech. Corp., No. Civ-08-1361-D, 2010 WL 476633, at *4 (W.D. Okla. Feb. 4, 2010); see also Schmidt v. United States, 912 P.2d 871, 874 (Okla. 1996) (holding that exculpatory clauses that waive or release liability for damages are enforceable provided that: (1) the intent to excuse one party from the consequences of his or her own negligence is expressed in clear, definite, and unambiguous language; (2) the agreement was made at arm’s length with no vast disparity of bargaining power between the parties; and (3) the exculpation is not contrary to statute or public policy).
In the context of transactions for the sale of goods, the Oklahoma Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances. See Okla. Stat. Ann. tit. 12A, §§ 2-711 – 2-714, 2-715(2). However, Oklahoma code section 2-719 of title 12A permits the buyer and seller to contract to limit or exclude consequential damages unless the limitation or exclusion is unconscionable or where the circumstances cause a contractually specified limited or exclusive remedy to fail of its essential purpose. See Collins Radio Co. of Dall., Tex. v. Bell, 623 P.2d 1039, 1051 (Okla. Civ. App. 1980) (finding a waiver of consequential damages clause to be enforceable where the “evidence show[ed] neither unconscionability nor failure of the essential purpose of the remedy”); Tuttle v. Kelly-Springfield Tire Co., 585 P.2d 1116, 1119 (Okla. 1978) (acknowledging that section 2-719(3) “recognizes the validity of agreements limiting consequential damages”).
Application of Economic Loss Doctrine
Oklahoma law recognizes the economic loss doctrine in products liability cases. Under the economic loss doctrine, as applied in Oklahoma, “no action lies in manufacturers’ products liability for injury only to the product itself resulting in purely economic loss.” Waggoner v. Town & Country Mobile Homes, Inc., 808 P.2d 649, 653 (Okla. 1990).
Since Waggoner, the Supreme Court of Oklahoma has revisited the economic loss doctrine on two occasions, both in 1992. First, the court in Oklahoma Gas & Elec. Co. v. McGraw-Edison Co., 834 P.2d 980 (Okla. 1992), held that the economic loss rule applied and that a plaintiff “may not recover damages for injury to the allegedly defective product itself and consequential economic harm flowing from that injury upon the theory of manufacturers’ products liability.” 834 P.2d at 982 (applying the doctrine where the alleged damage was to defective transformer and ancillary equipment, as well as clean-up, repair and reinstallation damages).
The second case limited the holding in Waggoner. Specifically, the limited application of the rule to cases in which the alleged damage was to the product itself, leaving plaintiffs free to pursue tort claims based on personal injury or damage to other property. See Dutsch v. Sea Ray Boats, Inc., 845 P.2d 187, 193–94 (Okla. 1992). The court noted that the exclusion of personal injury and “other property” from the rule was specifically stated in Waggoner. Id. at 193 (citing Waggoner, 808 P.2d at 652).
The Supreme Court of Oklahoma has never elaborated on the difference between “consequential economic harm” flowing from injury to the defective product (such that the economic loss rule applies under Oklahoma Gas & Electric) and “other property” (such that the rule does not apply under Waggoner and Dutsch) . Cf. United Golf, LLC v. Westlake Chem. Corp., 2006 WL 2807342, at *4 (N.D. Okla 2006) (stating that the Supreme Court of Oklahoma has not “define[d] the terms ‘consequential damages’ or ‘other property,’ leaving those questions open”). One federal district court in Oklahoma utilized the definition of “consequential damages” from the Uniform Commercial Code in determining whether damages were “consequential economic harm” or other property. United Golf, 2006 WL 2807342, at *4–*5.
No Application Beyond Products Liability
The Supreme Court of Oklahoma has never applied the economic loss rule outside of the products liability context. Federal courts in Oklahoma have taken this silence to mean that tort claims based on economic loss are not barred in non-products liability cases. See, e.g., Compsource Okla. v. BNY Mellon, N.A., No. CIV-08-469, 2009 WL 2366112, at *2 (E.D. Okla. July 31, 2009) (declining to extend application of the economic loss doctrine because Oklahoma courts have only applied the doctrine to products liability). Notably, a federal court in Oklahoma utilized this logic in holding that the economic loss rule does not apply in construction cases. See Lexington Ins. Co. v. Newbern Fabricating, Inc., No. 14-CV-0610-CVE-TLW, 2016 WL 4059251, at *5–*6 (N.D. Okla. July 28, 2016) (permitting claim for negligent construction).
Enforceability of No Damages for Delay Clauses
A federal court in Oklahoma has held that “no damages for delay” provisions are valid and enforceable, subject to an exception “where the party seeking to enforce such clause has engaged in inequitable conduct.” See U.S. ex rel. M.L. Young Constr. Corp. v. The Austin Co., No. CIV-04-0078-T, 2005 WL 2396597 at *5 (W.D. Okla. Sept. 28, 2005) (where construction contract contained a “no damages for delay” provision, evidence of inequitable conduct precluded summary judgment on claim for delay damages).
Strict Interpretation of Contract
Oklahoma courts strictly interpret contracts. “The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.” 15 Okl. St. § 154. The court’s primary goal is to give effect to the intent of the parties at the time the contract was formed. Mercury Inv. Co. v. F.W. Woolworth Co., 706 P.2d 523, 529 (Okla. 1985); see also 15 Okl. St. § 152 (“A contract must be so interpreted so as to give effect to the mutual intention of the parties, as it existed at the time of contracting, so fare as the same is ascertainable and lawful.”). Courts in Oklahoma “will read the provisions of a contract in their entirety, to give effect to the intention of the parties as ascertained from the four corners of the contract, and where the language is ambiguous, it will be interpreted in a fair and reasonable sense.” Okla. Oncology & Hematology P.C. v. U.S. Oncology, Inc., 160 P.3d 936, 946 (Okla. 2007); see also 15 Okl. St. §§ 155-157. Oklahoma courts will give contract language its plain and ordinary meaning unless a technical meaning is conveyed. Id.; see also 15 Okl. St. § 160 (“The words of a contract are to be understood in their ordinary and popular sense … unless used by the parties in a technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed.”). The court will decide, “as a matter of law, whether a contract provision is ambiguous and interpret the contract provision as a matter of law, where the ambiguity can be cleared by reference to other provisions, or where the ambiguity arises from the contract language and not from extrinsic facts.” Id. Where the meaning of an ambiguous contract is in dispute, Oklahoma courts may look to extrinsic evidence to assist in construing the intention of the parties. Fowler v. Lincoln Cnty. Conservation Dist., 15 P.3d 502, 507 (Okla. 2000) (citing Brogden v. Perryman, 56 P.2d 398 (Okla. 1936); see also 15 Okl. St. § 163. Where ambiguity or uncertainty is not extinguished through other contract interpretation rules, Oklahoma courts will interpret the language of an ambiguous contract “most strongly against the party who caused the uncertainty to exist.” 15 Okl. St. § 170.
Prompt Payment Requirements (Public/Private)
Oklahoma Public – Okla. Stat. tit. 61, §§ 221–227 (2022) (applicable only to public contracts over $25,000; owner to prime within 30 days of invoice for progress payments; no reduction of invoice amount without providing reasons within 14 days and only for reduction of reasonable cost to correct work; 21 days after substantial completion for final payment; payment from prime contractor to subcontractor 10 days after payment; a sub-tier contractor shall receive payment no later than 7 days after subcontractor receives its corresponding payment; interest for prime contractor at statutory rate and for subcontractor at 1.5% per month, unless interest is provided to contractor at statutory rate, in which case subcontractor receives such rate).
Oklahoma Private –
Okla. Stat. tit. 15, § 820 (2022) (requires owners on private construction projects to specify in writing the frequency and time period for payment to prime; otherwise, owner is required to make monthly payments within 28 days of receipt of billing; prime to sub within 10 days of receipt payment from owner, unless otherwise agreed).
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).
Oklahoma – N/A
Licensing Requirements for Construction Managers
In Oklahoma, no express requirements exist for a construction manager, general contractor, or subcontractor to obtain a contractor’s license. Oklahoma’s Construction Industries Board regulates only the plumbing, electrical, and mechanical trades, and building and construction inspectors. See Okla. Stat. Ann. tit. 59, § 1000.2. Construction managers undertaking design responsibilities either comply with licensing requirements for architects and engineers or ensure that their scope of work does not infringe upon these professional trades. See id. § 46.2 (architects); § 475.1 (engineers).