Enforceability of Limitation of Liability Clauses
Limitations of Liability
South Carolina courts uphold limitations of liability, particularly between private parties of roughly equal bargaining power. Gladden v. Boykin, 739 S.E.2d 882, 884-85 (S.C. 2013) (permitting limitation of liability in home inspection contract). Courts will rarely find a limitation of liability unconscionable. Maybank v. BB&T Corp., 787 S.E.2d 498, 575-76 (N.C. 2016). In Georgetown Steel Corp. v. Union Carbide Corp., 806 F. Supp. 74 (D.S.C. 1992), aff’d in part, rev’d in part, 7 F.3d 223 (4th Cir. 1993), the court enforced an engineer’s limitation on professional negligence where the parties were found to have equal bargaining power. Id. at 77. The provision limited professional negligence claims to the greater of either $50,000 or the contract fee. Id. The court noted that the plaintiff was a sophisticated business entity, and therefore, it must have understood the consequence of such a limitation of liability. Id.
Parties to contracts under the Uniform Commercial Code may limit or modify remedies and warranties. S.C. Code Ann. §§ 36-2-316, 36-2-719 (West 2022). Whether a party may recover consequential damages upon the failure of a limited remedy appears to depend on the facts and circumstances of each case. Waters v. Massey-Ferguson, Inc., 775 F.2d 587, 593 (4th Cir. 1985) (permitting recovery of consequential damages to a farmer because the parties premised the warranty provisions on certain repair, but repair efforts never proved successful).
While enforceable, South Carolina law disfavors exculpatory clauses and strictly construes them against the party relying on them. Pride v. S. Bell Tel. & Tel. Co., 138 S.E.2d 155, 157 (S.C. 1964); S.C. Elec. & Gas Co. v. Combustion Eng’g, Inc., 322 S.E.2d 453, 458 (S.C. Ct. App. 1984) (finding that exculpatory clause in contract between public utility and manufacturer of boilers did not explicitly shield manufacturer from liability for negligent design). Whether a provision is enforceable depends on whether it violates public policy. Pride, 138 S.E.2d at 156-57. An overly broad exculpatory clause may be unenforceable as contrary to public policy. Fisher v. Stevens, 584 S.E.2d 149, 152-53 (S.C. Ct. App. 2003) (rejecting exculpatory clause that relieved “any persons in any restricted area” from all liability, regardless of the circumstances giving rise to the injury).
S.C. Code Ann. § 32-2-10 (West 2022) invalidates provisions in construction contracts purporting to indemnify the promisee for damages arising out of bodily injury or property damage proximately caused by or resulting from the promisee’s sole negligence. A promisor may still indemnify the promisee for damages resulting, in whole or in part, from the promisor. Id.
Enforceability of Waiver of Consequential Damages Clauses
South Carolina 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 enforce such clauses because they have enforced contractual limitations of liability in other contexts. See Hill v. BASF Wyandotte Corp., 696 F.2d 287, 291 (4th Cir. 1982) (interpreting South Carolina code section 36-2-719 and holding that the district court erred in allowing the jury to award consequential damages despite an express limitation of remedies in a sales contract and without a finding of unconscionability); Hill v. BASF Wyandotte Corp., 311 S.E.2d 734, 736 (S.C. 1984) (treating exclusion of consequential damages as enforceable but finding that certain damages were not consequential); Eaton Corp. v. Trane Carolina Plains, 350 F. Supp. 2d 699, 705 (D.S.C. 2004) (interpreting South Carolina code section 36-2-719 and stating that, “where a proper exclusion of consequential and incidental damages is contractually agreed to, a plaintiff’s remedy is limited by the terms of that exclusion”). South Carolina courts generally enforce limitations of damages. See Gladden v. Boykin, 739 S.E.2d 882, 884–85 (S.C. 2013) (finding limitation-of-liability clause in a home-inspection contract enforceable); Georgetown Steel Corp. v. Union Carbide Corp., 806 F. Supp. 74, 77–78 (D.S.C. 1992) (enforcing an engineer’s contractual limitation on professional negligence claims to the greater of either $50,000 or the contract fee), aff’d in part, rev’d in part on other grounds sub nom. Georgetown Steel Corp. v. Law Eng’g Testing Co., 7 F.3d 223 (4th Cir. 1993) (Table).
In the context of transactions for the sale of goods, the South Carolina Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances. See S.C. Code Ann. §§ 36-2-711 – 36-2-714, 36-2-715(2). However, South Carolina code section 36-2-719 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. Ruling on a claim under South Carolina law, the U.S. District Court for the District of South Carolina assessed unconscionability by considering factors such as “(1) the nature of the injuries suffered by the plaintiff; (2) whether the plaintiff is a substantial business concern; (3) disparity in the parties’ bargaining power; (4) the parties’ relative sophistication; (5) whether there is an element of surprise in the exclusion; and (6) the conspicuousness of the clause.” See Myrtle Beach Pipeline Corp. v. Emerson Elec. Co., 843 F. Supp. 1027, 1046–48 (D.S.C. 1993) (quotation marks omitted; quoting Kaplan v. RCA Corp., 783 F.2d 463, 467 (4th Cir. 1986)) (noting that “exclusions of consequential damages are common in commercial transactions” and finding that the “exclusion of consequential damages was not unconscionable”).
Application of Economic Loss Doctrine
While maintaining an “intermediate” approach to the doctrine, South Carolina takes a slightly different approach to the economic loss rule than in most other states. Instead of a focus on the nature of the damages being sought in tort, South Carolina courts focus solely on the source of the duty in the tort claim. This formulation was developed in Tommy L. Griffin Plumbing & Heating Co. v. Jordan, Jones & Goulding, Inc., 463 S.E. 2d 85 (S.C. 1995). The court in Tommy L. Griffin noted specifically that “[w]e recognize some states use the “economic loss” rule to prohibit all recovery of purely economic damages in tort.” 463 S.E.2d at 88. The court went on to state that “the law in South Carolina, however, has long recognized tort actions when the damages are purely economic.” Id. (noting architect and accountant liability in tort). In rejecting a damages-based approach, the court in Tommy L. Griffin created the “source of duty” rule: “The question, thus, is not whether the damages are physical or economic. Rather the question of whether the plaintiff may maintain an action in tort for purely economic loss turns on the determination of the source of the duty plaintiff claims the defendant owed.” Id. The court thus held that South Carolina law recognizes an independent tort duty for design professionals on construction projects. Id. at 88-89; see also Beachwalk Villas Condo. Ass’n v. Martin, 406 S.E.2d 372, 374 (S.C. 1991) (finding a special duty for architects).
Other Independent Duties
Additionally, a builder may be liable to a home purchaser for purely economic losses in tort where the builder has “violated an applicable building code,” “deviated from industry standards,” or” constructed housing that he knows or should know will pose serious risks of physical harm.” Kennedy v. Columbia Lumber & Mfg. Co., Inc., 384 S.E.2d 730, 737–38 (S.C. 1989). This exception, however, has been limited to the residential home construction context. Sapp v. Ford Motor Co., 687 S.E.2d 47, 49–51 (S.C. 2009).
Enforceability of No Damages for Delay Clauses
South Carolina courts generally enforce no damages for delay clauses “so long as they meet ordinary rules governing the validity of contracts.” U.S. ex rel. Williams Elec. Co. v. Metric Constructors, Inc., 480 S.E. 2d 447, 448 (S.C. 1997). Although South Carolina courts do not recognize the common “delays not contemplated by the parties” exception, South Carolina courts do recognize exceptions for fraud, misrepresentation, bad faith, active interference, unreasonable delay justifying abandonment, and gross negligence. Id. at 449-51.
Strict Interpretation of Contract
South Carolina courts strictly interpret contracts. The South Carolina courts seek to ascertain and give effect to the intention of the parties. S.C. DOT v. M & T Enters. of Mt. Pleasant, LLC, 667 S.E.2d 7, 12 (S.C. Ct. App. 2008). To determine the intention of the parties, a court must first look at the language of the contract. Id. at 12-13. The construction of a clear and unambiguous contract presents a question of law for the court. Id. at 13. When “a contract’s language is clear and unambiguous, the language alone determines the contract’s force and effect.” McGill v. Moore, 672 S.E.2d 571, 574 (S.C. 2009) (citing Schulmeyer v. State Farm Fire and Cas. Co., 579 S.E.2d 132, 134 (S.C. 2003). As such, South Carolina courts will read the contract as a whole so that one may not simply create ambiguity by pointing out a single sentence or clause. Id. If the contract is ambiguous, however, the court will use extrinsic evidence to ascertain the intent of the parties. Cullen v. McNeal, 702 S.E.2d 378, 384 (S.C. Ct. App. 2010); see also Williams v. Gov’t Employees Ins. Co. (GEICO), 762 S.E.2d 705, 710 (S.C. 2014) (citing Hawkins v. Greenwood Dev. Corp., 493 S.E.2d 875, 878-79 (S.C. Ct. App. 1997). South Carolina courts hold that “[a] contract is ambiguous when it is capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.” Id. (quoting Hawkins, 493 S.E.2d at 878). While South Carolina courts will not absolutely construe ambiguities against the contract drafter, courts are to construe ambiguous contract language liberally and interpret said language “strongly in favor of the non-drafting party.” S. Atl. Fin. Services, Inc. v. Middleton, 590 S.E.2d 27, 29 (S.C. 2003) (citing Myrtle Beach Lumber Co., Inc. v. Willoughby, 274 S.E.2d 423 (1981)).
Prompt Payment Requirements (Public/Private)
South Carolina Public – S.C. Code Ann. §§ 29-6-10 to -6-60 (2022) (owner to prime 21 days after invoice; prime to sub and sub to lower tier 7 days after payment; interest at 1% per month if party being charged interest was notified of interest provisions at time of payment request).
South Carolina Private – S.C. Code Ann. §§ 29-6-10 to -6-60 (2022) (excludes residential home construction) (owner to prime 21 days after invoice; prime to sub and sub to lower tier 7 days after payment; interest at 1% per month if party being charged interest was notified of interest provision at time of payment request).
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).
South Carolina – N/A
Licensing Requirements for Construction Managers
Under South Carolina law, construction managers must be licensed as either a general or mechanical contractor, a registered engineer, or as an architect. S.C. Code Ann. § 40-11-320. Chapter 11 of the Code of Laws of South Carolina 1976 defines a “construction manager” as “an entity working for a fee whose duties are to supervise and coordinate the work of design professionals and multiple prime contractors, while allowing the design professionals and contractors to control individual operations and the manner of design and construction …” Id. § 40-11-20(5). A construction manager must file a letter with the South Carolina Department of Labor, Licensing and Regulation designating one license that the construction manager will use to qualify for the practice of construction management. Id. § 40-11-320(C).