Hard Hat Case Notes

AuthorBy Hugh D. Brown and Lauren P. McLaughlin
THE CONSTRUCTION LAWYER 37Volume 41, Issue 4, 2022
Court Holds Limited Liability
Clause Is Not to Be Strictly
Limitation of liability clauses
are essential risk-management
tools in construction contracts
and require careful drafting to
ensure that they are enforce-
able in the way the contracting
parties intend. In a recent deci-
sion, the Colorado Court of
Appeals analyzed an ambigu-
ous limitation of liability clause
and decided what principles of
interpretation were applicable to
determine the clause’s enforce-
ability as a partial waiver of
An architect hired an engi-
neer to assist with a project for an apartment building
and to provide mechanical, plumbing, and electrical ser-
vices. The contract between the architect and engineer
contained a limitation of liability clause that stated:
In light of the limited ability of the Engineer to
affect the Project, the risks inherent in the Project,
and of the disparity between the Engineer’s fees
and the potential liability exposure for problems or
alleged problems with the Project, the Client agrees
that if the Engineer should be found liable for loss
or damage due to a failure on the part of [Engineer]
such liability shall be limited to the sum of two
thousand dollars ($2,000 or twice the Engineer’s
fee whichever is greater) as consequential damages
and not as a penalty, and that is liability exclusive.
Before project completion, the owner and the archi-
tect discovered substantial problems with the building’s
heating and hot water systems. The engineer allegedly
admitted that these issues were attributable to its design
error, then proposed and executed repairs to address the
deciencies. The architect found additional problems fol-
lowing the completion of the repairs and chose to employ
a different rm to x the remaining issues.
The owner then initiated an arbitration against the
architect based on claims arising from the design of the
heating and hot water system, and in that arbitration, the
architect was found liable for $1.2 million in damages.
Because the engineer was not a party to the arbitration,
the architect subsequently sued the engineer to recover
damages from the engineer.
In the district court action, the engineer relied on the
limitation of liability clause as a defense to the damages
claimed. The architect argued that the limitation of lia-
bility clause was unenforceable because it was too “vague,
confusing and ambiguous to be enforceable.” The district
court rejected this argument. It found that the limitation
was unambiguous and enforceable because the only plau-
sible interpretation of the language was that it operated
to limit the engineer’s liability to the architect to $2,000
or twice the engineer’s fee.
The engineer then moved for leave to deposit the
sum owed under the limitation of liability clause and
sought dismissal with prejudice. The architect opposed
the motion on several grounds, including that the limita-
tion of liability clause was void as a matter of law under
Colorado law stating that exculpatory agreements are
only enforceable. The district court granted the engineer’s
motion to dismiss the case with prejudice. The architect
On appeal, the Colorado Court of Appeals agreed
with the architect that the district court erred in nding
that the limitation of liability clause was unambiguous
because it failed to consider the provision in its entirety.
In part, the court took issue with the lower court’s failure
to analyze the language of the clause that stated “such
liability shall be limited ... as consequential damages.”
The court reasoned that a reasonable interpretation could
support the nding that the limitation only applied to
consequential damages and not other types of damages,
or that all damages caused by the engineer would be clas-
sied as solely consequential damages under the contract.
The court of appeal also cited the potential ambiguity
of the clause’s phrase that “that is liability exclusive.” The
court reasoned that this language could either mean that
the provision was the exclusive means for the architect to
recover consequential damages or that it intended to be
the exclusive means of imposing any liability. The court
was not persuaded by the engineer’s submission that the
phrasing of the provision should not undo the intent of
the parties to limit the engineer’s liability to twice its fees.
The court examined several possible interpretations of
the language in question and found that the existence of
several reasonable interpretations supported the nding
that the clause was ambiguous.
The court then addressed the architect’s claims that the
limitation of liability provision was void because it was
ambiguous. Although under Colorado law an ambigu-
ous contract provision is an issue of fact for the district
court to resolve, the Colorado Supreme Court has held
that ambiguous exculpatory agreements are void and
unenforceable. The court of appeals determined that a
limitation of liability clause is fundamentally distinct
from an exculpatory agreement. The court reasoned that
although both types of provisions limit a party’s liability,
exculpatory agreements are a complete bar to liability and
Hugh Brown
Lauren P. McLaughlin
By Hugh D. Brown and Lauren P. McLaughlin
Published in
The Construction Lawyer
, Volume 41, Number 4. © 2022 American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not
be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

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