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Georgia Court of Appeals Provides Guideline for Drafting Enforceable Exculpatory Clauses in Georgia

4/23/19

By: Bart Gary and Jake Carroll

Exculpatory clauses are terms in a contract that shift the risk of loss to the other party or a third-party, or attempt to limit one’s obligations under a contract. A typical exculpatory clause is a “limitation of liability” provision, which is commonly used in agreements for services—especially professional services, rendered by accountants, architect, engineers and consultants.
Attempts to limit one’s liability to agreed amounts are sometimes challenged in court on the ground that they violate “public policy,” but are nevertheless generally enforceable in Georgia, provided such clauses are “explicit, prominent, clear and unambiguous.”
While these requirements have been addressed in prior appellate decisions, in Warren Averett, LLC v. Landcastle Acquisition Corp.[1] the Georgia Court of Appeals discussed in detail the “prominence” requirement for limitation of liability clauses in a contract for accounting services. The Court observed that a number of factors are considered when evaluating the enforceability of an exculpatory clause or limitation of liability clause:

• Font. The clause should not be in the same font size used throughout the contract. It should be “capitalized, italicized, or set in bold type for emphasis.”
• Setoff. The clause should be set off in a separate section that specifically addressed liability or recoverable damages, with a bold, underlined, capitalized or italicized specific heading, such as “Limitation of Liability” or “DAMAGES.”
• Location. The clause should be in a prominent place within the contract to emphasize the importance of the clause’s limitation on recoverable damages, such as being adjacent to another similarly significant provision or being next to the parties’ signature lines.[2]

These factors should be used as a guide for parties when drafting and negotiating contracts with exculpatory clauses. For example, in construction contracts, the parties should pay close attention to the font and location of indemnity and no-damage-for-delay clauses. In commercial and professional services contracts, common exculpatory clauses that merit close scrutiny address indemnity, limitation of lability, waivers of certain types of damages, and insurance terms.
Finally, while the opinion is helpful as concerns what is not prominent, it does not offer a clear statement of what is prominent. For example, does the font need to be bold, capitalized, and italicized, or will one choice work? In light of the Warrant Averett decision, it would seem that the more factors met, the less risk the clause is found unenforceable.
If you have questions regarding this decision, or any other contract drafting questions, please contact Bart Gary at bgary@fmglaw.com and Jake Carroll at jcarroll@fmglaw.com. Mr. Gary and Mr. Carroll practice construction and commercial law as members of Freeman Mathis & Gary’s Construction Law, Commercial Litigation, and Tort and Catastrophic Loss practice groups as well as representing business and commercial entities in a wide range of disputes and corporate matters involving breach of contract, business torts, and products liability claims.

[1] Warren Averett, LLC v. Landcastle Acquisition Corp., 2019 Ga. App. LEXIS 178, Case no. A18A2117, March 13, 2019. (physical precedent only). Because one judge of the three-judge panel concurred in the judgment, the opinion is limited, physical precedent.

[2] 2019 Ga. App. LEXIS 178 at 9-10 (emphasis by the Court) (internal citations omitted).