Enforceability of Limitation of Liability Clauses
Author: Saloni Shah and Joanna Kopcyzk
Limitation of Liability
In Virginia, provisions limiting liability are generally enforceable. See, e.g., Regency Photo & Video, Inc. v. Am. Online, Inc., 214 F. Supp. 2d 568, 573 (E.D. Va. 2002) (upholding provision limiting liability to amount paid under the contract and excluding consequential and exemplary damages in contract between advertiser and Internet service provider). These provisions, however, must be clear, unambiguous and visible: “Under well-established rules of contract construction, where a written contract is complete on its face and plain and unambiguous in its terms, the court is not at liberty to search for its meaning beyond the instrument itself.” Jefferson Loan Office, Inc. v. Midlothian Elec., Inc., 32 Va. Cir. 81, 83 (Va. Cir. Ct. 1993) (recognizing limitation of liability in security system contract but finding that it did not apply because clause was limited to sale or lease of security and/or alarm systems and defendant merely installed the system).
Parties contracting under the Uniform Commercial Code may limit or modify remedies and warranties, absent unconscionability. Va. Code Ann. §§ 8.2-316, 8.2-719 (West 2021); Ritzie v. J & J Invs. & Sales, Inc., No. 4:04-CV00039, 2006 WL 328380, at *1 (W.D. Va. Feb. 10, 2006) (upholding provision limiting incidental and consequential damages in contract for construction of manufactured home). The failure of the essential purpose of a limited remedy or repair does not automatically result in the abrogation of a limitation of consequential damages. Envirotech Corp. v. Halgo Eng’g, Inc., 364 S.E.2d 215, 219-20 (Va. 1988). A consequential damages disclaimer is treated as an independent contractual provision. Id.
Va. Code Ann. § 54.1-411(A) (West 2021) permit architects, engineers, land surveyors and landscape architects to limit their liability for damages resulting from their errors or omissions in performing their services. See also Dewberry & Davis, Inc. v. C3NS, Inc., No. 2009-7506, 2010 WL 7765109, at *3 (Va. Cir. Ct. Aug. 18, 2010) (noting amendment permitting contractual limitation of liability).
Parties in Virginia may exculpate themselves from liability for property damage, but not for personal injury. The Supreme Court of Virginia in Johnson’s Adm’x v. Richmond & Danville R.R. Co., 11 S.E. 829, 829-30 (1890) held that an agreement entered into prior to any injury, releasing a tortfeasor from liability for negligence resulting in personal injury, is void as against public policy. Id. Virginia courts continue to abide by this principle. Hiett v. Lake Barcroft Cmty. Ass’n, Inc., 418 S.E.2d 894, 895-86 (Va. 1992) (“The case law in this Commonwealth over the past one hundred years has not altered the holding in Johnson.”). However, Virginia courts permit parties to contract for the release of liability for property damage. Id.; see Nido v. Ocean Owners’ Council, 378 S.E.2d 837, 838 (Va. 1989) (finding that condominium owners had waived their rights to bring an action against the owners’ council for damage resulting from a defect in the common area).
Determining the validity of an exculpatory clause requires an examination of three factors: (1) whether the clause contravenes public policy; (2) whether the clause could be readily understood by a reasonable person, and (3) whether the legal claim was within the contemplation of the parties when they included the exculpatory provision. Turner v. Va. Dep’t of Med. Assistance Servs., 230 F. Supp. 3d 498, 509 (W.D. Va. 2017).
In William H. Gordon Assocs., Inc. v. Heritage Fellowship, United Church of Christ, 784 S.E.2d 265 (Va. 2016), the Virginia Supreme Court held that a construction contract between an owner and contractor did not shift liability for a rain tank’s collapse and accompanying remedial work from the engineer to the contractor simply by virtue of the contractor using the plans in its construction work. Id. at 273. The contract forbade the contractor from making any design changes without the engineer’s express written consent. Id.
Va. Code Ann. § 11-4.1 (West 2021) invalidates any indemnification provision in a construction contract that purports to indemnify another party against liability for bodily injury or property damage caused by or resulting solely by the other party’s negligence. As explained by the Supreme Court of Virginia, “[b]ecause the phrases ‘caused by’ and ‘resulting solely from’ are disjunctive . . . [the statute] voids any indemnification provision that reaches damage caused by the negligence of the indemnitee, even if the damage does not result solely from the negligence of the indemnitee.” Uniwest Constr., Inc. v. Amtech Elevator Servs., Inc., 699 S.E.2d 223, 230 (Va. 2010), opinion withdrawn in part on reh’g, 714 S.E.2d 560 (Va. 2011) (emphasis added); Travelers Indem. Co. of Conn. v. Lessard Design, Inc., 321 F.Supp.3d 631, 638 (E.D. Va. 2018) (holding that an entire indemnification provision was invalid under Va. Code Ann. § 11-4.1 because the provision made no exception for cases in which the indemnitee’s negligence is the sole cause of the damages). However, the anti-indemnity statute would not affect an indemnity provision in a rental agreement for construction equipment since such an agreement is not considered a construction contract. RSC Equip. Rental, Inc. v. Cincinnati Ins. Co., No. 6:14-CV-00003, 2014 WL 3890588, at *5 (W.D. Va. Aug. 7, 2014) (“a rental agreement for a forklift is not a construction contract” because the object of the rental agreement was not to construct a building); but see, Travelers Indemnity Company of Connecticut v. Lessard Design, Inc., 321 F.Supp.3d 631, 637 (E.D.Va., 2018) (finding architectural agreement requiring supervisory role ensuring that architect’s plans are followed during construction phase to be construction contract).
Enforceability of Waiver of Consequential Damages Clauses
Virginia courts enforce contractual waivers of consequential damages in the construction context. For instance, in Vienna Metro LLC v. Pulte Home Corp., 786 F. Supp. 2d 1076 (E.D. Va. 2011), the court held that plaintiff “may not recover monetary damages because all of Plaintiff’s alleged damages are consequential, and the Declaration specifically prohibits the recovery of consequential damages. . . . [Plaintiff’s claimed] damages are consequential and may not be recovered based upon the contract’s explicit exclusion of consequential damages.” Id. at 1085. Generally, in Virginia, “waivers and limitations of liability in contracts are enforceable.” Regency Photo & Video, Inc. v. Am. Online, Inc., 214 F. Supp. 2d 568, 573 (E.D. Va. 2002); see Envirotech Corp. v. Halco Eng’g, Inc., 364 S.E.2d 215, 220 (Va. 1988) (concluding that a “consequential damages disclaimer . . . should be treated as an independent contractual provision, valid unless unconscionable”); Transcore, LP v. Richmond Metro. Transp. Auth., No. 19-cv-820, 2020 WL 7083941, at *3 (E.D. Va. Dec. 3, 2020) (“Waivers of consequential damages clearly are enforceable under Virginia law.”).
In the context of transactions for the sale of goods, the Virginia Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances. See Va. Code Ann. §§ 8.2-711 – 8.2-714, 8.2-715(2). However, Virginia code section 8.2-719 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 Envirotech Corp., 364 S.E.2d at 220 (“[I]n view of the unchallenged ruling by the trial court that the damage exclusion clauses were not unconscionable at inception of the contract and there being no circumstances in the failure by defendant to perform that make it unconscionable to enforce the parties’ allocation of risk, we conclude that the clauses are valid and enforceable.”); Russell v. Wright, 916 F. Supp. 2d 629, 659 n.18 (W.D. Va. 2013) (noting that, “under Virginia Code § 8.2–719, manufacturers can expressly limit their exposure to consequential damages resulting from a breach of warranty with regard to non-consumer goods”).
Application of Economic Loss Doctrine
Virginia courts apply the economic loss rule in a number of contexts, including construction cases. See, e.g., Sensenbrenner v. Rust, Orling & Neale, 374 S.E.2d 55, 58 (Va. 1988) (holding that homeowners could not recover against architect and contractor based upon claims of negligent design, supervision, and construction); Blake Constr. Co. v. Alley, 353 S.E.2d 724, 727 (Va. 1987) (affirming denial of a general contractor’s negligence claim against an architectural firm for economic losses sustained as a result of architects’ alleged negligent performance).
The court in Blake Construction also determined that a Virginia statute, Va. Code § 8.01-223, which provides that lack of privity is no defense to a negligence action involving personal injury or property damage, does not apply to cases of purely economic loss. Id. (“Under the [Virginia] common law there [can] be no recovery … in tort for only economic loss in the absence of privity. Under our construction of Code § 8.01-223, that statute does not eliminate the requirement of privity in a tort action for economic loss alone.”). More recent decisions have upheld this policy. See McConnell v. Servinsky Eng’g, PLLC, 22 F. Supp. 3d 610, 615 (W.D. Va. 2014); Goodrich Corp. v. BaySys Techs., LLC, 873 F. Supp. 2d 736, 747 (E.D. Va. 2012).
In 2019, the Supreme Court of Virginia considered the types of damages subject to the economic loss rule. In Tingler v. Graystone Homes, Inc., 834 S.E.2d 244 (Va. 2019), the plaintiffs, purchasers of a new home, sued the new home builder and alleged that they “suffered property damage, damage to their personal property in the Home, diminution in value of the property, [and] incurred costs in obtaining alternative housing.” 834 S.E.2d at 265. The plaintiffs alleged that the damage resulted both from the construction phase and post-construction repair phase of the defendant’s work on the home. Id. The Supreme Court held that the economic loss rule barred the plaintiffs’ claims for tort damages sustained during the construction phase of the work but that the doctrine did not preclude a tort claim based upon the post-construction repairs. Id. at 265–66.
Independent Duty Exception
The Supreme Court of Virginia has acknowledged limited exceptions to the rule where plaintiffs have identified duties independent from the contract, especially where the duty is statutory. For example, the Supreme Court held that the economic loss rule does not apply to bar claimants pursuant to the Virginia Consumer Protection Act because the Act creates independent duties. Abi-Najm v. Concord Condo., LLC, 699 S.E.2d 483, 488-89 (Va. 2010). The Court also permitted a negligence claim against a pest control company based upon statutes specific to such businesses. Kaltman v. All Am. Pest Control, Inc., 706 S.E.2d 864, 868–70 (Va. 2011).
Exception for Fraudulent Inducement
The Supreme Court of Virginia has also created an exception to the economic loss rule to permit fraudulent inducement claims based upon pre-contract misrepresentations demonstrating “a present intention not to perform” the contractual obligations. Abi-Najm, 699 S.E.2d at 363; but see Dunn Constr. Co. v. Cloney, 682 S.E.2d 943, 947 (Va. 2009) (misrepresentations made following contract formation are not actionable under fraud theory).
Enforceability of No Damages for Delay Clauses
The Virginia Code prohibits terms in public construction contracts that purport to waive, release, or extinguish the right of the contractor to recover costs or damages for “unreasonable delay” caused by acts or omissions of the public body and/or its agents or employees. Va. Code Ann. § 2.2-4335(A). The Virginia Supreme Court likewise has declared that “Contract limitations on a contractor’s right to damages for unreasonable delay are thus forbidden except to the extent enumerated by the General Assembly under Code § 2.2-4335(B) or other specific statutory enactment.” Blake Constr. Co., Inc./Poole & Kent v. Upper Occoquan Sewage Auth., 587 S.E. 2d 711, 718 (Va. 2003).
As Va. Code Ann. § 2.2-4335 applies only to public contracts, it is likely that Virginia courts will enforce no damages for delay clauses in private contracts in Virginia. See, e.g., E. J. Miller Constr. Co. v. Holt, 56 Va. Cir. 153 (Va. Cir. Ct. 1998) (vacating portion of arbitration award for delay damages based upon arbitrator’s misinterpretation of contract provisions, which expressly stated that the only remedy under the contract for any delay was an extension of the contract time).
Strict Interpretation of Contract
Virginia courts strictly interpret contracts. In Virginia, “[t]he guiding light in the construction of a contract is the intention of the parties as expressed by them in the words they have used, and courts are bound to say that the parties intended what the written instrument plainly declares.” Bolton v. McKinney, 855 S.E.2d 853, 855 (Va. 2021) (quoting Schuiling v. Harris, 747 S.E.2d 833, 836 (Va. 2013)). When the terms of a contract are clear and unambiguous, Virginia courts must give them their plain meaning. Pocahontas Mining L.L.C. v. Jewell Ridge Coal Corp., 556 S.E.2d 769, 771 (Va. 2002). Courts must enforce contracts as written. Id. at 772. In other words, Virginia courts will “construe the contract as a whole, giving terms their ordinary meaning unless some other meaning is apparent from the context,” and when interpreting the various provisions of an agreement courts will harmonize each provision, giving effect to each when possible, and said provisions will be “construed considering the circumstances under which they were executed and the condition of the parties.” Schuiling, 747 S.E.2d at 836 (citing Virginian Ry. Co. v. Hood, 146 S.E. 284, 285 (Va. 1929)). If ambiguity exists within the four corners of the document, then the court will look to extrinsic evidence to interpret the contract language. Vilseck v. Vilseck, 612 S.E.2d 746, 749 (Va. Ct. App. 2005). A contract is ambiguous “when ‘it may be understood in more than one way or when it refers to two or more things at the same time.’” Eure v. Norfolk Shipbuilding Drydock Corp., Inc., 561 S.E.2d 663, 668 (Va. 2002) (quoting Granite State Ins. Co. v. Bottoms, 415 S.E.2d 131, 134 (Va. 1992). “However, ‘[a] contract is not ambiguous merely because the parties disagree as to the meaning of the terms used.’” Id. (quoting TM Delmarva Power, L.L.C. v. NCP of Virginia, L.L.C., 557 S.E.2d 199, 200 (Va. 2002)). If ambiguity exists in the contract, Virginia courts will construe the ambiguous language more strictly against the party who prepared it. Winn v. Aleda Const. Co., Inc., 315 S.E.2d 193, 194 (Va. 1984) (citing Graham v. Commonwealth, 143 S.E.2d 831, 834 (Va. 1965)). However, Virginia courts will refrain from applying the contra proferentem rule of contract construction when the court can reach a resolution as to ambiguity without having to construe the language strictly against the drafter. See Charles E. Russell Co. v. Carroll, 74 S.E.2d 685, 687 (Va. 1953) (“[T]his rule of construction is not favored by the courts and is not resorted to when the contract is clear.”).
Prompt Payment Requirements (Public/Private)
Virginia Public – Va. Code Ann. §§ 2.2-4347 to 2.2-4356 (2022) (owner to prime shall promptly pay for the completely delivered goods or services by required payment date, but no more than 45 days of invoice or services received, whichever is later, for localities (unless valid withholding with notice from locality within 20 days of invoice or receipt of services); prime to sub/sub to lower tier within 7 days of payment (unless valid withholding with notice to sub within 15 days of invoice or receipt of services); interest charged to state agency at base rate on corporate loans (prime rate) as reported daily in Wall Street Journal; interest not to exceed the rate of interest established pursuant to Va. Code Ann. § 58.1-1812 (2022)); interest charged to contractors by subs/subs by lower tier at 1% per month unless otherwise agreed. Further, Va. Code Ann. § 2.2-4354 (2022) requires specific prompt payment clauses to be included in all contracts awarded by any agency of state or local government.
Virginia Private – N/A
False Claims Statute
Va. Code Ann. §§ 8.01-216.1 to 8.01-216.19 – The Virginia Fraud Against Taxpayers Act generally mirrors the FCA. Id. § 8.01-216.3. Virginia law imposes a civil penalty that reflects the same range of penalties imposed by the FCA, plus treble damages sustained by the Commonwealth, as well as the costs of bringing a civil action to recover the damages, including attorneys’ fees. Id. § 8.01-216.3(a). Virginia’s Act permits a court to award not less than two times the amount of damages, plus costs, sustained by the Commonwealth when a violator: (1) provides all the information known about that violation to the governmental investigators within 30 days of gaining that knowledge; (2) fully cooperates with the governmental investigators; and (3) provides the information without knowledge of the investigation and before the commencement of criminal prosecution, civil action, or administrative action. Id. § 8.01-216.3(b).
Licensing Requirements for Construction Managers
Virginia law does not provide separate licensing requirements for construction managers, however, the licensing requirements applicable to contractors and architects are sufficiently broad to include many of the services typically provided by construction managers. As such, construction managers in Virginia must ensure that they obtain the appropriate license in accordance with their designated contractual duties. The Virginia Supreme Court addressed this issue in Bacigalupo v. Fleming, 102 S.E.2d 321 (Va. 1958). In Bacigalupo, the court denied recovery to a plaintiff who contracted to “supervise” construction of an addition to a home because he failed to obtain a license or register as a general contractor under Virginia’s licensing statutes. In that regard, the court stated that:
The classification “any person” is comprehensive, broad, unlimited, unrestricted, and indiscriminative of whatever kind. It includes a person, whether he be an architect, an engineer, an agent, a servant, a superintendent, a supervisor, or a contractor, independent or dependent, who undertakes to do the things specified by the statute. It makes no difference what a person calls himself. If he does what is specified by the statute, then the statute fixes his classification.
Id. at 325 (under prior statute). See also Va. Code Ann. § 54.1-1100 (defining “contractor” to include “any person, that … undertakes to bid upon, or accepts, or offers to accept, orders or contracts for performing, managing, or superintending in whole or in part, the construction … of any building or structure … (emphasis added)); Id. § 54.1-400 (broadly defining the practice of architecture to include “the responsible administration of construction contracts in connection with any private or public buildings, structures or projects, or the related equipment or accessories”).
Accordingly, although there are no express licensing requirements for construction managers, construction managers may need to acquire a contractor’s, architect’s, and/or engineer’s license depending on the type of services they provide.