By Cindy Russell
Assistant Vice President, Senior Claims Examiner, Berkley Alliance Managers, a Berkley Company
March 10, 2022
News headlines: Architect pays $1 Million for Design Error on $15 Million Construction Project; Civil Engineer Tagged with a $250,000 Jury Verdict Because of Drainage Design Error – I could go on. Want to avoid your name in a headline like this? Include a limitation of liability clause in all your contracts (or as many as you can) and then the headline might read: Design Professional Only Pays $50,000 After $1 Million Verdict.
Contracts are a valuable tool for protecting design professionals when considering and agreeing to participate in projects. One way a contract can do this is by including a limitation of liability clause to manage the potential financial risks involved. However, note that the enforceability of this type of contract clause varies from state to state.
Some things to keep in mind when drafting a limitation of liability clause:
- it should be reasonable (you’re unlikely to get a client to agree to a limitation of $10,000 when your fee is $500,000). The limit can be a specific dollar amount, equal to your fee or limited to the available limit on your professional liability policy;
- it may need to be more visible than all the other contract terms and conditions (for example, underlined, bolded or a larger font), depending upon case law in the state governing the contract;
- and the contract is strongest if signed by both parties (in some jurisdictions the contract and/or its terms and conditions may not be enforceable if it’s not signed).
