Enforceability of Limitation of Liability Clauses
Limitation of Liability
Limitations of liability are generally enforceable in Wisconsin. See Jackson v. McKay-Davis Funeral Home, Inc., No. 07-C-1037, 2010 WL 4877912, at *2, *5 (E.D. Wis. Nov. 23, 2010) (upholding limitation of liability in carriage contract limiting liability to $100). However, parties may not contractually limit punitive damages. In Cook v. Pub. Storage, Inc., 761 N.W.2d 645, 667-68 (Wis. Ct. App. 2008), the court found that a clause limiting liability for punitive damages violated public policy because “[p]unitive damages serve the public policy purposes of punishing wrongdoers and deterring others.” Id. The court also noted that whether a limitation of liability is valid depends on the “reasonableness of the limitation in light of the injury anticipated by a breach of the contract [and] the underlying policies related to the desirability of the parties controlling their exposure to risk in the event of a breach of contract.” Id. at 668 (emphasis omitted).
Court’s evaluate stipulation of damages clauses similarly to limitations of liability. See Rainbow Country Rentals, Inc. v. Ameritech Publ’g., Inc., 706 N.W.2d 95, 104 (Wis. 2005) (holding that contract clause limiting rental company’s recoverable damages to all or portion of cost of advertisement following error omission was valid “stipulated damages” clause).
Parties to sales contracts may also limit liability pursuant to Wis. Stat. Ann. § 402.719 (West 2021).
Wisconsin courts disfavor exculpatory contracts and strictly construe such agreements against the party seeking to rely on them, including situations involving two commercial parties. Atkins v. Swimwest Family Fitness Ctr., 691 N.W.2d 334, 338 (Wis. 2005); Oklahoma Specialty Ins. Co. v. Mecum Auction, Inc., No. 2016AP82, 2016 WL 4768682, at *3 (Wis. Ct. App. Sept. 14, 2016). To be enforceable, exculpatory clauses must clearly express the parties’ intent and may only apply to “things within the contemplation of the parties at the time of execution of the release.” Arnold v. Shawano Cty. Agric. Soc’y, 330 N.W.2d 773, 778 (Wis. Ct. App. 1988), overruled on other grounds by Green Spring Farms v. Kersten, 401 N.W.2d 816 (Wis. 1987). The Supreme Court of Wisconsin has expressed that there must be evidence that the parties bargained over the exculpatory clause. Id. at 342. In fact, one case noted that “each exculpatory contract that this court has looked at in the past 25 years has been held unenforceable.” See Rainbow Country Rentals, 706 N.W.2d at 104. The dissent in Atkins noted that “the majority opinion will render it virtually impossible to enforce any exculpatory agreement in Wisconsin.” Atkins, 691 N.W.2d at 346 (Wilcox, J., dissenting).
In Charter Oak Fire Ins. Co. v. Wisconsin Elec. Power Co., 262 F. Supp. 3d 760 (E.D. Wis. 2017), the court held that a provision in a contract between a power plant owner and a dredging contractor providing that the contractor would assume all risks and responsibility for certain procedures, the natural environment, and loss of personal property did not suggest that the owner would not be liable for its own negligence. Id. at 768. Accordingly, the owner was liable for its negligence in causing the bluff above the contractor’s dredging project to collapse. Id. at 768-69.
Wis. Stat. Ann. § 895.447(1) (West 2021) invalidates any provision that limits or eliminates tort liability as part of or in connection with any contract relating to construction. This statute does not apply to insurance contracts or worker’s compensation plans. Id. § 895.447(2). Courts interpret this statute narrowly. Gerdmann by Habush v. U.S. Fire Ins. Co., 350 N.W.2d 730, 734 (Wis. Ct. App. 1984) (“Since the statute limits the common law right to freely contract, we must interpret it narrowly, placing the least possible restriction on the common law right.”). For example, the Wisconsin Court of Appeals found that this statute did not void an indemnity clause in a contract between a property owner and a contractor when the indemnity clause neither limited nor eliminated the property owner’s tort liability to third parties, but rather made the contractor the insurer should damages result. Id. at 734-36.
Enforceability of Waiver of Consequential Damages Clauses
Wisconsin courts have directly addressed the enforcement of contractual waivers of consequential damages in the construction context. In Appleton Papers, Inc. v. Andritz BMB AG, 798 N.W.2d 319 (Table), 2011 WL 867754 (Wis. Ct. App. 2011) (unpublished), the court interpreted a limitation-of-liability provision to determine whether it applied to preclude recovery of all consequential damages. Id. at *4. The court interpreted the specific provision at issue to not impose such a broad bar. Id. However, the court’s treatment of this limitation-of-liability clause in the construction context accords with other Wisconsin courts in holding that waiver of consequential damages clauses are enforceable. See, e.g., Wausau Paper Mills Co. v. Chas. T. Main, Inc., 789 F. Supp. 968, 974–75 (W.D. Wis. 1992) (holding that a clause excluding liability for consequential damages was enforceable despite the claim that such a waiver was unconscionable). Thus, under Wisconsin law, limitations or waivers of consequential damages clauses should generally be enforceable absent unconscionability. See id. at 975. In evaluating unconscionability, Wisconsin courts consider factors including the “parties’ age, intelligence, business experience, bargaining power, whether the terms were explained to the weaker party, whether alterations in the terms were possible . . . whether there were alternative sources of supply. . . . [and] whether the contract terms are commercially reasonable.” Id. (citation omitted; citing Disc. Fabric House of Racine, Inc. v. Wis. Tel. Co., 345 N.W.2d 417, 425 (Wis. 1984))
In the context of transactions for the sale of goods, the Wisconsin Uniform Commercial Code, allows a buyer to recover consequential damages from the seller under appropriate circumstances. See Wis. Stat. Ann. §§ 402.711 – 402.714, 402.715(2). However, Wisconsin code section 402.719 permits the parties to contract to limit or exclude consequential damages unless the limitation or exclusion is unconscionable or where the circumstances cause a contractually specified limitation or exclusive remedy to fail of its essential purpose. See, e.g., Trinkle v. Schumacher Co., 301 N.W.2d 255, 259 (Wis. Ct. App. 1980) (holding that a provision of a sales invoice for fabric stating that no claims would be allowed after goods were cut was an unconscionable limitation of damages as it provided neither minimum nor adequate remedy to buyer, when specific warranty of fitness for purpose intended was breached by seller).
Application of Economic Loss Doctrine
Wisconsin courts invoke the economic loss rule to preclude tort recovery relating to contracts for the sale of products but have expressly precluded its application to service contracts. Linden v. Cascade Stone Co., Inc., 699 N.W.2d 189, 192–93 (Wis. 2005). Where a contract encompasses both products and services, courts use the “predominant purpose test” to determine whether the economic loss rule applies. Id. at 193. Under this test, courts use “the totality of the circumstances test, which includes both quantitatively objective and subjective factors.” 1325 N. Van Buren, LLC v. T-3 Grp., Ltd., 716 N.W.2d 822, 834 (Wis. 2006). These factors include “the language of the contract, the nature of the business of the supplier, the intrinsic worth of the materials, the circumstances of the parties, and the primary objective they hoped to achieve by entering into the contract.” Id.
Wisconsin courts have held the economic loss rule to apply to construction cases under the Linden test. See, e.g., 1325 North Van Buren, LLC, 716 N.W.2d at 832-33 (barring negligence claims by project owner where contract to renovate warehouse into condominiums included defendant obligation to “furnish all of the component parts of the building and to perform all of the actual construction work, whether using its own personnel, subcontractors or a combination thereof”); Linden, 699 N.W.2d at 197 (barring tort claims against subcontractors where plaintiff had contracted generally for the building of a home). In these cases, the courts determined that the contracts at issue were for the provision of a product (such as a single home or condominium complex) instead of for construction management services. See 1325 North Van Buren, LLC, 716 N.W.2d at 832-33 (condominium complex); Linden, 699 N.W.2d at 197 (home). Some construction contracts, however, have been deemed service contracts outside of the limitations of the rule. See, e.g., Trinity Lutheran Church v. Dorschner Excavating, Inc., 289 Wis.2d 252, 267 (Wis. Ct. App. 2006) (holding a construction contract to be a services contract where work was “overall coordination of construction services” and where owner separately purchased products and contracted for other services).
No Privity Restriction
In conjunction with the policy aims of the doctrine, enforcement has not been restricted to parties in privity. The Wisconsin Supreme Court has barred tort claims in commercial transactions even where the plaintiff has no alternative contractual or warranty remedies. See Daanen & Janssen, Inc., 573 N.W.2d at 850 (“[T]he economic loss doctrine precludes a commercial purchaser from recovering in tort from a manufacturer for solely economic losses, regardless of whether privity of contract exists between the parties.”); see also St. Paul Mercury Ins. Co. v. Viking Corp., No. 04-C-1124, 2007 WL 129063, at *22 (E.D. Wis. Jan. 12, 2007), aff’d sub nom. St. Paul Mercury Ins. Co. v. The Viking Corp., 539 F.3d 623 (7th Cir. 2008) (“The Wisconsin Supreme Court has made it clear that the economic loss doctrine can be applied despite a lack of privity between the parties. Rather than looking at whether privity of contract existed between the two parties, the court looks at whether the claim involved ‘contract law concerns’ with ‘failed economic expectations.’”). However, lower courts have declined to apply the rule to parties without privity where there was not a “vertical chain of contractual relationships” (such as a consumer and manufacturer who were in “vertical privity” by way of an intermediary, as was the case in Daanen). See Trinity Lutheran Church, 289 Wis.2d 252 at 264 (declining to apply the rule in a claim against two separate contractors on a construction project).
Wisconsin courts have established multiple exceptions to the economic loss rule. The first is a narrow exception to the economic loss rule for fraudulent inducement claims. See, e.g., Hinrichs v. Dow Chemical Co., No. 2017AP2361, 2020 WL 98035, at *4–*5 (Wis. Jan. 9, 2020). In order to invoke this exception, the plaintiff must prove “(1) that the defendant engaged in an intentional misrepresentation; (2) that the misrepresentation occurred before the contract was formed; and (3) that the alleged misrepresentation was extraneous to the contract.” Id. at *5.
Second, the rule “does not bar a purchaser’s claim based on personal injury or damage to property other than the product, or economic loss claims that are alleged in combination with noneconomic losses.” Id. at *6. Two tests are employed to determine whether the “other property” exception is applicable. First, Wisconsin courts “consider whether the defective product and the damaged property are part of an integrated system.” Id. If the “integrated system” test is not met, courts analyze the “disappointed expectations” test. Id. “In doing so, we focus on the product’s expected function and whether the purchaser should have foreseen that the product could cause the damage at issue. When claimed damages are merely the result of disappointed expectations of a product’s performance, the exception will not apply and the economic loss doctrine will bar recovery in tort.” Id.
A third exception to the economic loss rule in Wisconsin is the “services” exception. According to this exception, “if a service is the predominant purpose of a mixed contract encompassing the sale of goods and services, then the contract is not subject to the economic loss doctrine.” Martin v. LG Elecs. USA, Inc., No. 14-cv-83-jdp, 2015 WL 1486517, at *5 (W.D. Wis. Mar. 31, 2015).
Enforceability of No Damages for Delay Clauses
No damages for delay clauses are generally enforceable in Wisconsin. See J.F. Ahern Co. v. City of Oak Creek, 314 N.W.2d 362, 1981 WL 139200, at *3, (Wis. Ct. App. 1981) (citing Nelson v. Eau Claire, 185 N.W. 168 (Wis. 1921)). Wisconsin courts recognize exceptions for delay caused by: (1) fraudulent conduct; (2) orders made in bad faith and to hamper the contractor; or (3) orders “unnecessary in themselves and detrimental to the contractor and which were the result of inexcusable ignorance or incompetence on the part of the engineer.” John E. Gregory & Son, Inc. v. A. Guenther & Sons Co., 432 N.W.2d 584, 586 (Wis. 1988). The Wisconsin Supreme Court has declined to recognize delays not contemplated by the parties as an additional exception. Id. at 587.
Strict Interpretation of Contract
Wisconsin courts strictly interpret contracts and give effect to the parties’ intentions by looking to the language of the contract. Seitzinger v. Cmty. Health Network, 676 N.W. 2d 426, 433 (Wis. 2004). The language of a contract is given the meaning that a reasonable person would understand the terms to mean, but “[l]anguage in a business contract is construed in the manner in which it would be understood ‘by persons in the business to which the contract relates.’” Ash Park, LLC v. Alexander & Bishop, Ltd., 866 N.W.2d 679, 685 (Wis. 2015)(quoting Columbia Propane, L.P. v. Wisconsin Gas Co., 661 N.W.2d 776, 783 (Wis. 2003)). When the terms of a contract are plain and unambiguous, a court will construe it as it stands. Sonday v. Dave Kohel Agency, Inc., 718 N.W. 2d 631, 639 (Wis. 2006); see also Ash Park, LLC 866 N.W.2d at 685 (Wis. 2015)(citing Maryland Arms Ltd. P’ship v. Connell, 786 N.W. 2d 15 20-21 (Wis. 2010)) (“When the terms of a contract are clear and unambiguous, we construe the contract’s language according to its literal meaning.”). However, if the language of the contract is ambiguous, the court will look to extrinsic evidence to determine the parties’ intent. Seitzinger, 676 N.W. 2d at 433. A contract provision is ambiguous if it is fairly susceptible of more than one construction. Mgmt. Computer Servs., Inc. v. Hawkins, Ash, Baptie & Co., 557 N.W. 2d 67, 75 (Wis. 1996). While Wisconsin courts follow the rule of contract interpretation that ambiguities are to be resolved against the contract drafter (Seitzinger, 676 N.W. 2d at 433), Wisconsin courts will not construe ambiguities against the drafter when the result would be inconsistent with the evidence of the parties’ intentions. Wilke v. Fist Fed. Sav. & Loan Assoc., 323 N.W. 2d 179, 181 (Wis. Ct. App. 1982); see also Goebel v. First Fed. Sav. & Loan Assoc., 266 N.W. 2d 352, 356 (Wis. 1978) (The principles underlying the canons of contract construction are “to aid in the ascertainment of the intention of the parties ….”).
Prompt Payment Requirements (Public/Private)
Wisconsin Public – Wis. Stat. § 16.528 (2022) (owner to prime 30 days after invoice or receipt and acceptance of services, whichever is later; prime to sub/sub to lower tier 7 days after payment from state agency to prime; interest at 12% per year).
Wisconsin Private – N/A
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).
Wisconsin – N/A