Enforceability of Limitation of Liability Clauses
Author: Saloni Shah and Joanna Kopcyzk
Limitations of Liability
Utah courts generally enforce limitations of liability. Morris v. Mountain States Tel. & Tel. Co., 658 P.2d 1199, 1201 (Utah 1983) (upholding limitation of liability in telephone company’s contract limiting liability for directory errors or omissions). Parties to sales contracts may limit or modify remedies and warranties, absent unconscionability. Utah Code Ann. §§ 70A-2-316, 70A-2-719 (West 2021); Blaisdell v. Dentrix Dental Sys., Inc., 284 P.3d 616, 620-21 (Utah 2012) (enforcing limitation of liability clause in a strict product liability claim). Limitations of liability are not effective if a party alleges fraud. Lamb v. Bangart, 525 P.2d 602, 608 (Utah 1974).
Utah Code Ann. § 13-8-2(2) (West 2021) prohibits any provision in an agreement between an owner and contractor that limits the owner’s or a design professional’s liability to the contractor for any claim arising from services that the design professional performed in connection with the land development. This provision does not apply if the owner and contractor are the same person/entity or are controlled by the same person/entity. Id.
An agreement between a contractor and a subcontractor may not limit the owner’s or a design professional’s liability to the subcontractor for any claim arising from the design professional’s services in connection with land development. Id. § 13-8-2(3). The prohibition on limitations of liability with respect to design professionals does not apply if the design professional is retained under a single contract to perform both the design and the construction of the project, such as in a design-build or turn-key project. Id. § 13-8-2(4). Nor do these provisions affect any limitation of a design professional’s liability to an owner or other design professional that may exist in an agreement between the owner and design professional or between design professionals. Id. § 13-8-2(5).
Parties in Utah may use exculpatory clauses to avoid potential liability. Russ v. Woodside Homes, Inc., 905 P.2d 901, 905-07 (Utah Ct. App. 1995); see also iDrive Logistics LLC v. Integra Core LLC, 424 P.3d 970, 989-990 (Utah Ct. App. 2018) (upholding exculpatory clause which precluded contract-based claims for damages). “While parties to a contract may generally exempt themselves from negligence liability, the language they use must clearly and unequivocally express an intent to limit tort liability in the contract itself[.]” Interwest Constr. v. Palmer, 923 P.2d 1350, 1356 (Utah 1996). “Generally, parties ‘not engaged in public service may properly bargain against liability for harm caused by their ordinary negligence in the performance of contractual duty; but such an exemption is always invalid if it applies to harm willfully inflicted or caused by gross or wanton negligence.’” Russ, 905 P.2d at 904 (quoting 6A Arthur L. Corbin, Corbin on Contracts § 1472, at 596-97 (1962)). Builders cannot, by contract, exculpate themselves from potential liability for unacceptable workmanship, building code violations, negligent construction, or other liabilities arising from their finished product. Id. at 907. However, they may, while construction is in progress, seek to “place potential liability for [the inherent risks of construction sites] on another party.” Id.
Utah Code Ann. § 13-8-1 (West 2021) provides that an indemnification provision contained in a construction contract is void except when the contract is between an owner and a construction manager, general contractor, subcontractor, a sub-subcontractor, a supplier or any combination of persons, in any action for damages such as bodily injury, damage to property, or economic loss. Id. § 13-8-1(1)(a)(i)-(vi)), (2). In such case, the owner’s fault is apportioned among the parties on a pro rata based on the proportional share of fault of each of the parties if the damages are caused in part by the owner and the cause of the damages did not arise at the time and during the phase of the project when the owner was operating as a party. Id. § 13-8-1(3)(a)-(b).
An agreement requiring a subcontractor to procure liability insurance and name the general contractor as an additional insured is not an “indemnification provision” if it does not require the subcontractor to personally insure or indemnify the general contractor for liability arising out of the general contractor’s own negligence. Meadow Valley Contractors, Inc. v. Transcontinental Ins. Co., 27 P.3d 594, 598 (Utah Ct. App. 2001).
Enforceability of Waiver of Consequential Damages Clauses
Utah courts have not directly addressed the enforcement of contractual waivers of consequential damages in the construction context, but it appears that they may enforce such clauses because they have enforced contractual limitations of liability in other contexts. Generally, Utah courts enforce limitations of liability, provided such limitations are not unconscionable and meet ordinary rules governing the validity of contractual terms. See Morris v. Mountain States Tel. & Tel. Co., 658 P.2d 1199, 1201 (Utah 1983) (upholding clause in telephone company’s contract limiting liability for directory errors or omissions); Russ v. Woodside Homes, Inc., 905 P.2d 901, 904 (Utah Ct. App. 1995) (observing that “parties may contract to shift potential liability from one party to another”); Res. Mgmt. Co. v. Weston Ranch & Livestock Co., 706 P.2d 1028, 1040 (Utah 1985) (“Although the right to contract freely on terms which establish and allocate risks between the contracting parties is fundamental, courts nonetheless recognize some limits to the extent to which a party may be compelled to perform an unconscionable duty.”).
Notably, Utah code section 72-6-203(4)(i) expressly states that limitations of liability and waivers of consequential damages may be included in a tollway development agreement.
In the context of transactions for the sale of goods, the Utah Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances. See Utah Code Ann. §§ 70A-2-711 – 70A-2-714, 70A-2-715(2). However, Utah code section 70A-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. See Blaisdell v. Dentrix Dental Sys., Inc., 284 P.3d 616, 621–22 (Utah 2012) (enforcing limitation-of-liability clause excluding consequential damages in contract for medical-practice management software, agreeing with the trial court that the exclusion “was not unconscionable and that the remedy provisions did not fail in their essential purpose”).
Application of Economic Loss Doctrine
Utah recognizes the economic loss doctrine in products liability and construction cases and has codified the doctrine as it applies to causes of action for “defective design or construction.” Utah Code § 78B-4-513(1). This code section also establishes a common exception to the rule, however, when the action includes “damage to other property or physical personal injury if the damage or injury is caused by the defective design or construction.” Id. § 78B-4-513(2). However, the statute states that “other property” exception does not apply to claims where the alleged property damage involves “the failure of construction to function as designed” or “diminution in value of the constructed property because of the defective design or construction.” Id. § 78B-4-513(3).
The Court of Appeals of Utah has defined “action for defective design or construction” broadly, holding in one case that a homeowner lawsuit against a design professional for “diminution in value of (or costs to repair) a structure that has settled or sustained damage as a result of subsidence” was barred by the statute. Hayes v. Intermountain GeoEnvironmental Servs. Inc., 446 P.3d 594, 600 (Utah Ct. App. 2019), aff’d, 498 P.3d 435, 438 (Utah 2021). In that case, the court also held that the homeowners’ claim for damages to the lot itself were also barred by the rule and that the “other property” exception did not apply to the claims. See id. at 601–602.
In 2021, the Supreme Court of Utah granted certiorari to address whether the Court of Appeals in Hayes erred in its application of the Economic Loss Statute, as the appeals court barred the plaintiff-homeowner’s claim for negligence against a geotechnical engineering firm that provided a report indicating the area of plaintiff’s home was safe for residential construction. See Hayes v. Intermountain GeoEnvironmental Servs., Inc., 498 P.3d 435, 436-38 (Utah 2021). The Supreme Court affirmed the Court of Appeals, agreeing that the defendant-geotechnical engineering firm was subject to the Economic Loss Statute. See id. at 442.
Additionally, “[t]he common law version of the economic loss rule continues to apply in situations that are beyond the scope of the statute.” Id. at 598. Utah case law recognizes that “the economic loss doctrine requires that contract law define the remedy when the loss is strictly economic, i.e., when no damage occurs to persons or property other than the product in question.” Grynberg v. Questar Pipeline Co., 70 P.3d 1, 11 (Utah 2003) (applying Wyoming economic loss rule); Reighard v. Yates, 285 P.3d 1168, 1176 (Utah 2012).
Independent Duty Exception
Despite the codification of the economic loss rule, Utah Code § 78B-4-513 preserves the independent-duty exception to the doctrine where the breach of the independent duty is intentional. Utah Code § 78B-4-513(5) (“If a person in privity of contract sues for defective design or construction [through breach of contract], nothing in this section precludes the person from bringing, in the same suit, another cause of action to which the person is entitled based on an intentional or willful breach of a duty existing in law.”).
In applying the economic loss doctrine, Utah courts focus on the duty that was breached, employing the independent duty-based rule. Hermansen v. Tasulis, 48 P.3d 235, 240 (Utah 2002). Once there is a contract, any tort claim must be premised upon an independent duty that exists apart from the contract. “[T]he initial inquiry in cases where the line between contract and tort blurs is whether a duty exists independent of any contractual obligations between the parties. When an independent duty exists, the economic loss rule does not bar a tort claim. …” Hermansen v. Tasulis, 48 P.3d 235, 240 (Utah 2002); see also Davencourt at Pilgrims Landing Homeowners Ass’n v. Davencourt At Pilgrims Landing, 221 P.3d 234, 244 (Utah 2009). “All contract duties, and all breaches of those duties – no matter how intentional – must be enforced pursuant to contract law.” Grynberg v. Questar Pipeline Co., 70 P.3d at 11. Accordingly, the economic loss doctrine bars recovery in tort for purely economic loss unless the tort claims are based on a duty independent of those found in the contract. See, e.g., KTM Health Care Inc. v. SG Nursing Home, LLC, 2018 WL 3910728, at *17–*18 (Utah Aug. 16, 2018) (holding that fraud claims were barred by economic loss rule where only alleged misrepresentations were that defendant would comply with terms of contract and where allegations in contract and fraud involved identical conduct).
Utah courts have found independent duties in a variety of business relationships, including the relationship between a residential contractor-seller and a homebuyer and the limited fiduciary relationship between a developer and a homeowners’ association. See, e.g., Gables at Sterling Village Homeowners Assoc., Inc. v. Castlewood-Sterling Village I, LLC, 417 P.3d 95, 108–10 (Utah 2018); Yazd v. Woodside Homes Corp., 143 P.3d 283, 287-88 (Utah 2006); Davencourt, 221 P.3d at 244; Lifevantage Corp. v. Domingo, No. 2:13-CV-1037-JNP-PMW, 2016 WL 5255086, at *17 (D. Utah Sept. 22, 2016) (economic loss rule did not apply where marketing company had independent duty not to defame). Notably, however, Utah courts have not found an independent duty to apply to design professionals. See SME Industries, Inc. v. Thompson, Ventulett, Stainback and Associates, Inc., 28 P.3d 669, 685 (Utah 2001).
Enforceability of No Damages for Delay Clauses
Although no damages for delay clauses are generally enforceable in Utah, such clauses do not “exculpate the contractee for liability for damages for delay with the work of the contractor where such interference is direct, active, or willful.” Allen-Howe Specialties Corp. v. U.S. Constr., Inc., 611 P.2d 705, 709 (Utah 1980). In addition, the Supreme Court of Utah has acknowledged exceptions adopted by other jurisdictions, including: “(1) A delay that is the result of fraud or active interference on the part of one seeking the benefit of the provision; (2) a delay which has extended such an unreasonable length of time that the party delayed would have been justified in abandoning the contract; (3) a delay not within the specifically enumerated delays to which the no damage clause is to apply . . .” Western Eng’rs v. State, 437 P.2d 216, 217-18 (Utah 1968) (nonetheless finding that plaintiffs “were not entitled to introduce parol evidence to indicate that the delay was unreasonable or was not contemplated by the parties” despite other jurisdictions recognizing this exception).
Strict Interpretation of Contract
Utah courts strictly interpret contracts and look to the language of the contract to determine its meaning and the intent of the contracting parties. WebBank v. Am. Gen. Annuity Serv. Corp., 54 P.3d 1139, 1144 (Utah 2002). Utah courts also consider each contract provision in relation to all of the others, with a view toward giving effect to all and ignoring none. Id. “Where ‘the language within the four corners of the contract is unambiguous, the parties’ intentions are determined from the plain meaning of the contractual language, and the contract may be interpreted as a matter of law.’” Encon Utah, LLC v. Fluor Ames Kraemer, LLC, 210 P.3d 263, 267 (Utah 2009) (quoting Green River Canal Co., v. Thayn, 84 P.3d 1134 (Utah 2003)); see also Glenn v. Reese, 225 P.3d 185, 188-89 (Utah 2009) (When the contract language is unambiguous, the intentions of the parties are to be determined “from the plain meaning of the contractual language.”). However, if the language is ambiguous, Utah courts will consider extrinsic evidence to determine the intent of the contracting parties. Brady v. Park, 445 P.3d 395, 403 (Utah 2019) (citing Plateau Mining Co. v. Utah Div. of State Lands & Forestry, 802 P.2d 720, 725 (Utah 1990)). “A contractual term or provision is ambiguous ‘if it is capable of more than one reasonable interpretation because of uncertain meanings of terms, missing terms, or other facial deficiencies.’” Glenn, 225 P.3d at 189 (quoting Café Rio, Inc. v. Larkin-Gifford-Overton, LLC, 207 P.3d 1235, 1240 (Utah 2009)). “If extrinsic evidence is not conclusive [as to ambiguities in the contract], then the last resort in contract interpretation is to construe the provision against the drafter.” Fire Ins. Exchange v. Oltmanns, 285 P.3d 802, 805 (Utah Ct. App. 2012) (citing Wilburn v. Interstate Electric, 748 P.2d 582, 585 (Utah Ct. App. 1988)) (emphasis in original).
Prompt Payment Requirements (Public/Private)
Utah Public – Utah Code Ann. §§ 15-6-2 to 15-6-6, 13-8-5, 58-55-603 (West 2022). (Unless the project involves the disbursement of federal funds in whole or in part, owner to prime as required by contract or within 60 days of invoice, interest on monies due prime at 2% above the rate paid by IRS; prime to sub/sub to lower tier within 30 days after payment from owner or agency; interest on monies due subs at 15.5% per year, unless otherwise provided by contract; final retention payment to contractor 45 days after invoice or certificate of occupancy or final acceptance notice, whichever is later; final retention payment to sub/lower tier 10 days after receipt from owner; owner or contractor who knowingly and wrongfully withholds a retention subject to additional charge of 2% per month on the improperly withheld amount. Disputed payments are excepted from the prompt payment requirements.)
Utah Private – Utah Code Ann. §§ 13-8-5, 58-55-603 (West 2022). (No provision for owner to pay progress payments – limited to the payment of retention and final payment; final payment 45 days after invoice or certificate of occupancy, whichever later; prime to sub within 30 days of receiving payment for progress payments, or within payment deadline under billing terms, otherwise interest at 1% per month, plus attorneys’ fees and costs; prime to sub within 10 days of receiving final payment, additional charge of 2% per month on improperly withheld retention payment, plus attorneys’ fees and costs; retention not to exceed 5% of payment.)
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).
Utah – N/A
Licensing Requirements for Construction Managers
The Utah Construction Trades Licensing Act includes “construction manager” within its definition of “contractor.” Utah Code Ann. § 58-55-102. The Act requires that anyone performing work as a “contractor” must become licensed before performing such work. Id. § 58-55-301. Because there is no specific “construction manager” license, construction managers must maintain an alternative form of license applicable to their work, for instance, a general engineering contractor license, general building contractor license, or residential and small commercial contractor license. Id.