Enforceability of Limitation of Liability Clauses
Limitations of Liability
Absent unconscionability, limitations of liability are enforceable in Pennsylvania. Pennsylvania courts have upheld limitation of liability clauses in various commercial settings. Borden, Inc. v. Advent Ink Co., 701 A.2d 255, 262 (Pa. Super. Ct. 1997) (stating that clauses limiting damages in commercial settings are generally enforced when determined to be conspicuous); Topp Copy Prods., Inc. v. Singletary, 626 A.2d 98, 99-100 (Pa. 1993) (enforcing clause in commercial lease relieving landlord of liability resulting from plumbing malfunctions); Todd Heller, Inc. v. United Parcel Serv., Inc., 754 A.2d 689, 701 (Pa. Super. Ct. 2000) (enforcing waiver of consequential damages contained in standard shipping company invoice). The Third Circuit, applying Pennsylvania law, enforced a limitation of liability contained in a design services contract between a developer and architectural firm, limiting the developer’s remedy to $50,000. Valhal Corp. v. Sullivan Assocs., 44 F.3d 195, 201-04 (3d Cir. 1995). The court noted that a limitation of liability clause may be unenforceable if it removes the incentive to perform with due care but found that $50,000 was not a nominal amount of damages. See id. at 204; see also New Prime, Inc. v. Brandone Balchune Constr., Inc., No. 3:14-CR-2410, 2017 WL 6419281, at *11-12 (M.D. Pa. Dec. 15, 2017) (upholding bilateral limitation of liability clauses in construction contract).
In the construction context, the Superior Court of Pennsylvania has suggested that a limitation of liability clause may be enforceable even where a party breaches the contract in bad faith. John B. Conomos, Inc. v. Sun Co. (R&M), 831 A.2d 696, 706-09 (Pa. Super. Ct. 2003) (“Implied duties cannot trump the express provisions in the contract.”). A limitation of liability, however, cannot exclude statutorily mandated penalties for the violation of Pennsylvania’s Contractor and Subcontractor Payment Act. Id. at 710-11.
Parties contracting under the Uniform Commercial Code may limit or modify remedies and warranties, absent unconscionability. 13 Pa. Cons. Stat. Ann. §§ 2316, 2719 (West 2022); see also Borden, 701 A.2d at 263 (enforcing clause in contract between supplier and manufacturer limiting damages to cost of commodity and excluding consequential damages).
Pennsylvania courts recognize exculpatory clauses if three conditions are met: “(1) the clause must not contravene public policy; (2) the contract must be between persons relating entirely to their own private affairs; and (3) each party must be a free bargaining agent to the agreement so that the contract is not one of adhesion.” Vinikoor v. Pedal Pa., Inc., 974 A.2d 1233, 1238 (Pa. Commw. Ct. 2009). Pennsylvania courts use the following standards in evaluating exculpatory clauses: (1) the contract language must be strictly construed because the law disfavors exculpatory clauses; (2) the contract must clearly state the parties’ intentions; (3) if there is any ambiguity, the language must be construed against the party seeking immunity; and (4) the party invoking the clause has the burden of establishing the immunity. Id.
“No damages for delay” clauses are enforceable unless (1) the owner interfered with the contractor’s work, or (2) there was a failure on the owner’s part to act on a matter essential to the prosecution of the work. Guy M. Cooper, Inc. v. E. Penn. Sch. Dist., 903 A.2d 608, 613 (Pa. Commw. Ct. 2006); see also Coatesville Contractors & Eng’rs, Inc. v. Borough of Ridley Park, 506 A.2d 862, 866 (Pa. 1986) (refusing to enforce exculpatory provision due to borough’s failure to drain lake before commencement of excavation work).
Pennsylvania does not have a general anti-indemnity statute for construction contracts, but it does have a statute that prohibits the indemnity of design professionals for claims arising out of (1) the preparation or approval of maps, drawings, change orders, designs or specifications, or (2) the giving or failure to give directions or instructions, provided that the failure is the primary cause of the damage. 68 Pa. Stat. Ann. § 491 (West 2022) . This provision does not apply to limitations of liability. Valhal, 44 F.3d at 204.
Enforceability of Waiver of Consequential Damages Clauses
Pennsylvania courts have enforced waiver of consequential damages clauses in the construction context. For instance, in Jay Jala, LLC v. DDG Construction, Inc., No. 15-3948, 2016 WL 6442074 (E.D. Pa. Nov. 1, 2016), the U.S. District Court for the Eastern District of Pennsylvania enforced a waiver of consequential damages provision in a contract for the construction of a motel and conducted an analysis to determine what type of damages qualified as consequential. See id. at *2–7. Applying Pennsylvania law in accordance with a choice-of-law provision, the U.S. District Court for the District of Massachusetts accepted the parties’ agreement that “consequential damages limitations should be enforced unless they are unconscionable” and found that a consequential damages limitation in a licensing and technology transfer contract was not unconscionable. See Mistry Prabhudas Manji Eng. Pvt. Ltd. v. Raytheon Eng’rs & Constructors, Inc., 213 F. Supp. 2d 20, 26–27 (D. Mass. 2002). The Mistry court noted that, [i]n commercial settings, a limitation of damages clause will rarely be found unconscionable.” Id. at 27 (quoting Borden, Inc. v. Advent Ink Co., 701 A.2d 255, 264 (Pa. Super. Ct. 1997)).
Generally, Pennsylvania courts have enforced contractual limitations of liability in other contexts. See John B. Conomos, Inc. v. Sun Co., Inc. (R&M), 831 A.2d 696, 704 (Pa. Super. Ct. 2003) (“The law of the Commonwealth does not disfavor limitation of liability provisions.”); Todd Heller, Inc. v. United Parcel Serv., Inc., 754 A.2d 689, 699 (Pa. Super. Ct. 2000) (holding limitation-of-liability provisions included in a carrier’s shipping invoice were enforceable); Fed. Express v. Paris Bus. Forms Inc., No. 84-06332, 1988 WL 136950, at *3 (Pa. C.P. Jan. 6, 1988) (“When the issue before the [Pennsylvania] courts has been whether the limitation of liability clause excludes recovery of lost profits or consequential damages, the courts have [uniformly] upheld the limitation clause and denied recovery of consequential damages.”); N.Y. State Elec. & Gas Corp. v. Westinghouse Elec. Corp., No. 6086-9576, 1987 WL 60291, at *3 (Pa. C.P. Dec. 16, 1987) (“Under Pennsylvania law, it is well established that contractual provisions eliminating liability for special, indirect or consequential damages are valid and enforceable.”). Indeed, the U.S. Court of Appeals for the Third Circuit applied Pennsylvania law and enforced a limitation of liability contained in a design services contract between a developer and architectural firm that limited the developer’s remedy to $50,000. Valhal Corp. v. Sullivan Assocs., 44 F.3d 195, 201–04 (3d Cir. 1995). The Valhal court noted that a limitation-of-liability clause may be unenforceable if it removes the incentive to perform with due care, but found that $50,000 was not a nominal amount of damages as “compared to [defendant’s] expected compensation [under the contract] as to negate or drastically minimize [defendant’s] concern for the consequences of a breach of its contractual obligations.” Id. at 204; see also Greenspan v. ADT Sec. Servs. Inc., 444 F. App’x 566, 569 (3d Cir. 2011) (unpublished) (“Pennsylvania state courts have upheld limitation of liability clauses in contracts that are governed by the Uniform Commercial Code as well as in contracts not governed by the UCC . . . .”).
In the context of transactions for the sale of goods, the Pennsylvania Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances. See 13 Pa. Stat. and Cons. Stat. Ann. §§ 2711 – 2714, 2715(2). However, Pennsylvania code section 2719 of title 13 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. Pennsylvania courts have determined that the test for unconscionability of a contract provision is whether the party had a meaningful choice to accept or reject the provision in question and whether the provision unreasonably favors the other party. Hornberger v. Gen. Motors Corp., 929 F. Supp. 884, 891 (E.D. Pa. 1996).
Application of Economic Loss Doctrine
Beginning in 2018, Pennsylvania adheres to the “South Carolina” formulation of the economic loss rule. Previously, Pennsylvania courts had held that “no cause of action exists for negligence that results solely in economic damages unaccompanied by physical injury or property damage.” Excavation Techs., Inc. v. Columbia Gas Co., 985 A.2d 840, 841 n.3 (Pa. 2009). An exception to the rule was recognized in cases where a plaintiff stated a viable claim for negligent misrepresentation under Section 552 of the Restatement (Second) of Torts. Bilt-Rite Contractors, Inc. v. The Architectural Studio, 866 A.2d 270, 288 (Pa. 2005).
The Supreme Court of Pennsylvania had an opportunity to discuss the scope of the economic loss rule at length in Dittman v. UPMC, 196 A.3d 1036 (Pa. 2018). In Dittman, the plaintiffs pursued a claim of negligence based on the alleged breach of the defendant’s duty to “use reasonable care to safeguard its employees’ sensitive personal information” on the defendant employer’s computer systems. 196 A.3d at 1038–39. A major dispute arose over the scope of the economic loss rule, with the defendant arguing for a broad application of the rule under Excavation Technologies and a narrow exception carved out in Bilt-Rite. Id. at 1049.
The Supreme Court of Pennsylvania rejected the defendant’s formulation and narrowed the application of the doctrine. The court relied heavily on the statements in Bilt-Rite that “Pennsylvania has long recognized that purely economic losses are recoverable in a variety of tort actions” and that “a plaintiff is not barred from recovering economic losses simply because the action sounds in tort rather than contract law.” Id. at 1054 (citing Bilt-Rite, 866 A.2d at 288). The court approved of the test articulated by the South Carolina Supreme Court in Tommy L Griffin Plumbing & Heating Co. v. Jordan, Jones & Goulding, Inc., 463 S.E.2d 85 (S.C. 1995), whereby the focus would not be on the nature of the damages (physical or economic), but solely upon “the source of the duty plaintiff claims the defendant owed.” Id. at 1054 (quoting Tommy L Griffin, 463 S.E.2d at 88). Finding that the plaintiffs sufficiently identified a duty separate from their employment contracts (vis-à-vis the duty to secure personal information), the court held that the claims at issue were not barred by the economic loss doctrine. Id. at 1055. The court thus took a narrow view of the doctrine, and overruled Excavation Technologies to the extent that it could be read to broaden the rule beyond Bilt-Rite and Dittman. Id. at 1055–56.
The Dittman case likely simplifies the economic loss analysis and supersedes previous case law articulating standards for the doctrine. Already, one federal district court in Pennsylvania utilized the streamlined Dittman test. See New Berry, Inc. v. Manitoba Corp., No. 2:18-CV-01528-MJH, 2019 WL 452493, at *4–*5 (W.D. Pa. Feb. 5, 2019) (finding that a defective product claim was barred by the economic loss rule because the standards for the product that were allegedly breached were contained in the contract and not in an independent duty).
Notably, while there is no direction from the Supreme Court of Pennsylvania on the issue, federal courts in Pennsylvania are split as to whether the economic loss rule bars statutory claims under the Pennsylvania Unfair Trade Practices and Consumer Protection Law. Compare Silva v. Rite Aid Corp., No. 1:18-cv-2135, 2019 WL 4511688, at *4 (M.D. Pa. Sep. 19, 2019) (doctrine does not bar UTPCPL claim), with Bordoni v. Chase Home Fin., LLC, 374 F. Supp. 3d 378, 386 (E.D. Pa. 2019) (doctrine bars UTPCPL claim).
Expansion from Products Liability
Pennsylvania courts have applied the doctrine in various construction cases. See, e.g., Elliott-Lewis Corp. v. Skanska USA Bldg., Inc., No. CIV.A. 14-03865, 2015 WL 4545362, at *1 (E.D. Pa. July 28, 2015) (dismissing negligence claim by architects and engineers against manufacturers and supplier’s components on a project); Bilt-Rite Contractors, Inc. v. Architectural Studio, 866 A.2d 270, 285 (Pa. 2005) (holding that the economic loss rule did not bar a contractors’ negligent misrepresentation suit against an architect). Again, however, the analyses in these previous construction cases are likely superseded by Dittman.
Enforceability of No Damages for Delay Clauses
No damages for delay clauses are enforceable in Pennsylvania. James Corp. v. N. Allegheny Sch. Dist., 938 A.2d 474, 484 (Pa. Commw. Ct. 2007). Pennsylvania courts recognize however, that such exculpatory provisions cannot be raised as a defense where “(1) there is an affirmative or positive interference by the owner with the contractor’s work, or (2) there is a failure on the part of the owner to act on some essential manner necessary to the prosecution of the work.” Id. at 484 (finding that owner “failed to act in an essential manner under the contract.”). See also Gasparini Excavating Co. v. Pa. Turnpike Comm’n., 187 A.2d 157, 161-62 (Pa. 1963). In John Spearly Construction, Inc. v. Penns Valley Area School District, the school district argued that it should not be responsible for delays as a result of a no damages for delay clause. 121 A.3d 593, 602 (Pa. Commw. Ct. 2015). The court disagreed, finding that the district actively interfered with the project, and stating that such a clause “will not be enforced if a school district, or its agent, either took positive action not reasonably anticipated under the contract, or failed to act as needed for a project to progress.” Id. at 603.
Strict Interpretation of Contract
Pennsylvania courts strictly interpret contracts. “The fundamental rule in contract interpretation is to ascertain the intent of the contracting parties.” Lesko v. Frankford Hospital-Bucks County, 15 A.3d 337, 342 (Pa. 2011) (citing Ins. Adjustment Bureau v. Allstate Ins. Co., 905 A.2d 462, 468 (Pa. 2006)); see also State Farm Fire & Cas. Co. v. PECO, 54 A.3d 921, 328 (Pa. Super. 2012) (quoting Thomas Rigging & Constr. Co., Inc. v. Contraves, Inc., 798 A.2d 753, 755 (Pa. Super. 2002)) (“When interpreting the language of a contract, the intention of the parties is a paramount consideration.”). In situations involving a written contract, the intent of the parties is the writing itself. Id. (citing Ins. Adjustment Bureau, 905 A.2d at 468)). If the language of the contract is clear and unambiguous, the court will look at the document itself to ascertain the intent of the parties. Id. If the contract is ambiguous, however, extrinsic evidence will be admissible to explain, clarify, or resolve ambiguity. Kripp v. Kripp, 849 A.2d 1159, 1163 (Pa. 2004). A contract is ambiguous if it is reasonably susceptible of different constructions and capable of being understood in more than one sense. Ins. Adjustment Bureau, 905 A.2d at 468-69 (citing Kripp, 849 A.2d at 1163). Although unambiguous contracts are interpreted by the court as a matter of law, ambiguous writings are interpreted by the finder of fact. Id. In reviewing ambiguities, Pennsylvania courts “are free to construe the contract against the drafter,” but the Supreme Court of Pennsylvania has specifically held that “[a]ny ambiguities shall be construed against the contract drafter. Wert v. Manorcare of Carlisle PA, LLC, 124 A.3d 1248, 1259-60 (Pa. 2015). Further, Pennsylvania courts have held that when extrinsic evidence has clarified the ambiguous language, courts need not resort to the contract construction rule of contra proferentem. Mun. Auth. Of Borough of Midland v. Ohioville Borough Mun. Auth., 108 A.3d 132, 139-40 (Pa. App. Ct. 2015).
Prompt Payment Requirements (Public/Private)
Pennsylvania Public – 62 Pa. C.S.A. §§3931–3939, -3941 (2022) (owner to prime within 45 days of invoice or per contract terms and final payment within 45 days of inspection; prime to sub and sub to lower tier 14 days after receipt of payment; interest on amounts owed for progress payments at rate determined by Secretary of Revenue for interest on overdue taxes or refund of taxes as provided in Sections 806 and 806.1 of Fiscal Code; however, 15-day grace period before interest begins unless otherwise agreed; interest on amounts due for final payment at 6% or 10% per annum, depending on whether retainage provision in contract; for any amount withheld in bad faith (1) penalty interest of 1% per month, and (2) reasonable attorney’s fees to recover this amount).
Pennsylvania Private – 73 P.S. §§ 501–516 (2022) (Contractor and Subcontractor Payment Act) (progress payments: owner to prime within 20 days of invoice or end of billing period, whichever is later, unless otherwise agreed; prime to sub/sub to lower tier 14 days after payment or receipt of invoice, whichever is later; final payment: owner to prime within 20 days of invoice or end of billing period or if retainage, 30 days after final acceptance; prime to sub within 14 days after payment from owner or within 30 days after final acceptance, if prime retained; interest on unpaid amounts at 1% per month unless otherwise agreed; additional penalty of 1% per month on amounts “wrongfully withheld;” reasonable attorney’s fees to “the substantially prevailing party in any proceeding to recover any payment” under the Act).
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).
Pennsylvania – N/A
Licensing Requirements for Construction Managers
Pennsylvania law does not require a license for the provision of construction management services or general contractor services. Although the definition of “practice of architecture” in the Architects Licensure Law includes “construction management and administration of construction contracts,” the Licensure Law elsewhere specifically states that “[n]othing in this act shall be construed to prohibit … [t]he preparation of any shop drawings or the performance of construction management services by persons customarily engaged in construction work.” 63 Pa. Stat. Ann. §§ 34.3; § 34.15(3).