Enforceability of Limitation of Liability Clauses
Limitations of Liability
Vermont courts recognize limitations of liability. Colgan v. Agway, Inc., 553 A.2d 143, 145 (Vt. 1988) (“It has long been the law of this jurisdiction that contractual provisions limiting the tort liability of parties to a contract are not per se unconscionable.”). If a limitation of liability clause operates more like an exculpatory clause, a court will be less likely to enforce it. See Glassford v. BrickKicker, 35 A.3d 1044, 1049 (Vt. 2011) (finding contract for home inspection that limited inspector’s liability to $285 contract fee, required binding arbitration, and required party seeking arbitration to pay initial arbitration fee of $1,350 plus $450 per day essentially created an exculpatory clause and was void as against public policy).
Parties contracting under the Uniform Commercial Code may limit or modify remedies and warranties absent unconscionability. Vt. Stat. Ann. tit. 9A § 2-719 (West 2022); see also Wilk Paving, Inc. v. Southworth-Milton, Inc., 649 A.2d 778, 783-84 (Vt. 1994) (finding that contract between buyer and seller for purchase of asphalt roller effectively limited available remedies in the event of a breach of warranty).
Vermont courts have held that a greater degree of clarity is required to make an exculpatory clause effective than would be required for other contract provisions. Colgan, 553 A.2d at 145. Vermont courts will uphold an exculpatory clause if it is: “(1) freely and fairly made; (2) between parties who are in an equal bargaining position; and (3) there is no social interest with which it interferes.” Dalury v. S-K-I, Ltd., 670 A.2d 795, 797 (Vt. 1995). Vermont courts consider a six-factor test in determining whether an exculpatory clause violates public policy but recognize that “no single formula will reach the relevant public policy issues in every factual context.” Id. While not required, Vermont courts have indicated that parties should specifically refer to negligence liability in an exculpatory clause to demonstrate their intent. Thompson v. Hi Tech Motor Sports, Inc., 945 A.2d 368, 376 (Vt. 2008) (holding that broad waiver of liability for injuries occurring from test driving a motorcycle applied only to the inherent risks of the activity, not to the negligence of the vendor); Colgan 553 A.2d at 146 (finding that exculpatory language in contract was unenforceable to release contractor from liability for negligence partly because it contained no specific reference to negligence or tort liability).
Vermont courts treat waiver of subrogation clauses as exculpatory clauses and apply the same standards in evaluating their validity. Behr v. Hook, 787 A.2d 499, 503 (Vt. 2001) (stating that waiver-of-subrogation clauses in construction contracts “are intended to allow the parties to ‘exculpate each other from personal liability in the event of property loss or damage to the work to the extent each party is covered by insurance”).
Vermont does not have an anti-indemnity statute governing the construction industry. If parties wish to permit an indemnitee to recover for his own negligence, such contractual provision must be express and part of an arm’s length transaction. Hemond v. Frontier Commc’ns of Am., Inc., 122 A.3d 1205, 1214 (Vt. 2015); Southwick v. City of Rutland, 35 A.3d 113, 117 (Vt. 2011).
Enforceability of Waiver of Consequential Damages Clauses
Vermont courts have not specifically addressed the enforceability of consequential damages waiver provisions in construction contracts, but it appears that they may likely enforce such clauses because they have enforced contractual limitations of liability in other contexts. Generally, Vermont courts recognize limitations of liability provided they are not against public policy or unconscionable. See Howard Opera House Assocs. v. Urban Outfitters, Inc., 166 F. Supp. 2d 917, 934–35 (D. Vt. 2001) (enforcing waiver of consequential damages provision in commercial lease agreement so as to preclude plaintiff’s recovery of lost profits); Lamoille Grain Co. v. St. Johnsbury & Lamoille Cnty. R.R., 369 A.2d 1389, 1390 (Vt. 1976) (observing that “[w]here the language of the agreement is clear, the intention and understanding of the parties must be taken to be that which their agreement declares”); but see Glassford v. BrickKicker, 35 A.3d 1044, 1048–49 (Vt. 2011) (finding contract for home inspection that limited inspector’s liability to the inspection fee and required binding arbitration was void as against public policy).
In the context of transactions for the sale of goods, the Vermont Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances. See Vt. Stat. Ann. tit. 9A, §§ 2-711 – 2-714, 2-715(2). However, Vermont code section 2-719 of title 9A 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 Wilk Paving, Inc. v. Southworth-Milton, Inc., 649 A.2d 778, 783–84 (Vt. 1994) (enforcing waiver of consequential damages clause in contract for purchase of asphalt roller).
Application of Economic Loss Doctrine
Vermont’s economic loss rule prohibits recovery in tort for purely economic losses for both construction services and products liability. See EBWS, LLC v. Britly Corp., 928 A.2d 497, 507 (Vt. 2007) (construction services); Paquette v. Deere and Co., 719 A.2d 410, 412–15 (products liability).
Independent Duty Exception
Vermont courts recognize an exception to the economic loss rule where the parties have a special relationship that creates a duty independent from the parties’ contractual obligations. Sutton v. Vt. Regional Ctr., No. 2018-158, 2019 WL 4892199, at *6 (Vt. Oct. 4, 2019). For example, the Supreme Court of Vermont held that the economic loss rule did not bar a claim against a state agency where the agency recruited the plaintiffs as investors for infrastructure projects. Id. at *7. In that case, the state agency’s personal solicitation of the plaintiffs to invest their life savings in the projects was sufficient to create the special relationship. Id.
It is not settled law in Vermont whether fraud-based claims between contracting parties are barred by the economic loss doctrine. See Mansfield Heliflight, Inc. v. Freestream Aircraft USA, Ltd., No. 2:16-CV-28, 2016 WL 7176586, at *14 (D. Vt. Dec. 7, 2016). Some federal courts in Vermont have declined to impose the rule in such cases. Id. at n.11.
Strict Interpretation of Contract
“The cardinal principle in the construction of any contract is to give effect to the true intention of the parties.” In re Cronan, 563 A.2d 1316, 1317 (Vt. 1989); see also Southwick v. City of Rutland, 35 A.3d 113, 115 (Vt. 2011) (“[O]ur goal is to give effect to the intent of the parties as it is expressed in their writing.”). Thus, as a general rule, extrinsic evidence will not be admissible unless the contract is determined to be ambiguous as a matter of law. Kipp v. Estate of Chips, 732 A.2d 127, 131 (Vt. 1999). Therefore, “[w]hen the contract language is unambiguous, we take these words to represent the parties’ intent, and the plain meaning of this language governs its interpretation.” Southwick, 35 A.3d at 115 (citing In re West, 6855 A.2d 1099, 1103 (Vt. 1996). Thus, “when the language of the contract is clear on its face, [courts] will assume that the intent of the parties is embedded in its terms.” In re Verderber, 795 A.2d 1157, 1161 (Vt. 2002). When determining whether the language is ambiguous, Vermont courts allow limited extrinsic evidence of “circumstances surrounding the making of the agreement.” Kipp, 732 A.2d at 131. Vermont courts will review the contract in its entirety seeking to harmonize all contractual provisions to determine if ambiguity exists. Construction Drilling, Inc. v. Engineers Construction, Inc., 236 A.3d 193, 199 (Vt. 2020). If the contract is found ambiguous, the interpretation becomes a question of fact which is to be determined from all relevant evidence. Kipp, 732 A.2d at 131. Ambiguity in a contract exists when there is more than one interpretation of a contractual term or if the meaning of the language is unclear. Construction Drilling, 236 A.3d at 199. Vermont courts will generally interpret ambiguities against the drafter. Madowitz v. Woods at Killington Owners’ Ass’n, 6 A.3d 1117, 1131 (Vt. 2010). However, Vermont courts have departed from this general rule of construing ambiguities against the drafter where the agreement was as a result of an arm’s length deal and the facts suggest no true disparity between the parties in bargaining power. Southwick, 35 A.3d at 114-15.
Prompt Payment Requirements (Public/Private)
Vermont Public – 9 V.S.A. §§ 4002–4005, tit. 12, § 2903 (2022) (for progress and final payments, owner to prime as agreed or within 20 days of end of billing period or delivery of invoice, whichever is later; owner must release retainage to prime within 30 days after final completion; prime to sub/sub to lower tier within 7 days after payment received or 7 days after receipt of sub’s invoice, whichever is later; interest on late payments at statutory rate of 12% per year unless otherwise agreed; penalty per month for amounts wrongfully withheld).
Vermont Private – 9 V.S.A. §§ 4002–4005, tit. 12, § 2903 (2022) (for progress and final payments, owner to prime as agreed or within 20 days of end of billing period or delivery of invoice, whichever is later; owner must release retainage to prime within 30 days after final completion; prime to sub/sub to lower tier within 7 days after payment received or 7 days after receipt of sub’s invoice, whichever is later; interest on late payments at statutory rate of 12% per year unless otherwise agreed; penalty per month for amounts wrongfully withheld).
False Claims Statute
Vt. Stat. Ann. Tit. 32, §§ 630-642 – The Vermont False Claims Act generally mirrors the FCA and expressly states that the legislature intended for Vermont courts to use the federal FCA as guidance in applying the state Act. Id. § 641(b). Vermont’s Act also imposes liability on beneficiaries of inadvertent submissions of false claims or overpayments by the state who subsequently discover the falsity of the claim or receipt of overpayment and fail to disclose the same within 120 days of discovery or the date any corresponding cost report is due, if applicable. Id. § 631(a). Vermont imposes a civil penalty between $5,500 and $11,000, plus treble damages sustained by the state, in addition to the state’s costs to investigate and prosecute the violation. Id. § 631(b). Further, the penalties are in addition to other remedies, including those available under common law. Id. § 641(a).
Licensing Requirements for Construction Managers
The State of Vermont does not require construction managers to obtain licensure at the state level. Construction managers and contractors may be subject to licensing requirements at the local level. Local licensing requirements vary by municipality.