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By: Cheryl H. Shaw
It’s no coincidence that the abbreviation for “Limitation of Liability” is LOL. That’s the reaction design professionals often get when they include an LOL clause in a contract proposal. LOL or “exculpatory” clauses limit the designer’s liability for future claims—usually to the cost of services or a fixed dollar amount. Clients frequently balk at these clauses, but since the client reaps the bulk of the rewards for a successfully completed project (vs. the designer who’s “reward” is limited to his fee), shouldn’t the client also shoulder the bulk of the risk?
In Georgia, design professionals can contractually limit their liability for negligence. However, the LOL clause must be narrowly drafted so it does not violate Georgia’s anti-indemnity statute[note]Georgia’s anti-indemnity statute, OCGA 13-8-2(c), was amended last year and applies to all contracts executed after July 1, 2016. The amended statute voids indemnity clauses in A&E contracts unless the indemnity obligation is limited to those damages caused by the negligence, recklessness, or misconduct of the design professional.
[/note]. This means, among other things, that the clause should limit the designer’s liability to his client only, and not to third-parties who are “strangers” to the contract. Attempts to avoid liability to third-parties may render the entire clause unenforceable even if the claim is actually asserted by the client.
Additionally, because an LOL clause contemplates satisfaction of future claims and waives substantial rights, it must be “explicit, prominent, clear and unambiguous” in the contract. In determining if a clause is sufficiently prominent, Georgia courts consider several factors, including whether the clause is contained in a separate paragraph; whether the clause has a separate heading; and whether the clause is distinguished by features such as font size.
In one case, the Georgia Court of Appeals found an LOL clause unenforceable where it was “camouflaged” in the same font as the surrounding contract provisions and was listed under the heading “miscellaneous” instead of having its own separate paragraph. Conversely, an LOL clause contained entirely in its own paragraph, in bold and underlined text, and announced in a heading that clearly informed the reader of the clause’s content was sufficiently prominent.
A well-crafted LOL clause can be an effective tool to cap exposure in the event a lawsuit is filed and should be considered when negotiating contracts for professional services. If the client does, in fact, “laugh out loud” in response to your proposal, one strategy is to provide the option: You can either perform the services without an LOL clause for one fee, or you can lower the fee if the client will accept the clause.
FMG’s Construction Law practice group is here to assist you in drafting these important contact provisions. If you have questions or would like more information, please contact Cheryl H. Shaw at [email protected].