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Georgia Court Enforces Liability Limitation in Contract; Rejects Anti-Indemnity Argument
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March 15, 2010
By Peter K. Zweighaft
A developer hired an architect to design a retaining wall for a detention pond in a residential development. The parties’ contract stated: “It is agreed that [the developer] will limit any and all liability for any damage on account of any error, omission or other professional negligence to a sum not to exceed $50,000 or the amount of the fee, whichever is greater.” The contract also provided that the liability limitation could be raised to $1 million by paying a higher fee. The developer did not exercise that option. When the retaining wall failed, the developer sued the architect for negligence and breach of contract.
The architect moved for partial summary judgment to limit its liability to fees paid or to $50,000, as provided in the contractual liability limitation. The trial court denied the motion, finding that the limitation provision violated the 2001 version of Georgia Code Annotated §13-8-2. That statute rendered void and unenforceable any provision in a building construction agreement that purported to indemnify or hold harmless a party against liability arising from its sole negligence. 1/ The architect appealed, and the Georgia Court of Appeals reversed. Precision Planning, Inc. v. Richmark Communities, Inc., 298 Ga.App. 78, 679 S.E.2d 43 (2009).
The issue before the appellate court was whether the contract provision capping the architect's liability to the developer was void as against public policy. The developer argued, as it did before the trial court, that the contract’s liability limitation violated §13-8-2.
The appellate court disagreed, recognizing that Georgia law favors freedom of contract and generally does not prohibit a contracting party from waiving all recourse in the event of a breach by the other party to the contract. The appellate court found that no statute precluded that. The court recognized that the liability limitation did not purport to indemnify or hold the architect harmless from damages but only placed a limit on the architect’s liability to the developer. The court differentiated the liability limitation from §13-8-2, which prohibited only contract provisions purporting to indemnify or hold harmless one party from damages resulting from its sole negligence. It held that the architect and developer were free to limit the architect’s liability by contract.
The developer also pointed to a separate indemnity provision in the contract in which the developer agreed to indemnify the architect against claims by third parties and defense costs for such claims in excess of the liability limitation except for injury or loss caused by the architect's sole negligence or willful misconduct. The developer argued that this provision violated §13-8-2, rendering the liability limitation unenforceable.
The appellate court rejected the argument. Because the indemnity provision clause would not apply in the event of the architect’s sole negligence, it did not violate §13-8-2. The appellate court also noted that the indemnity provision did not modify the contract’s liability limitation. It simply placed a cap against the architect’s liability for third party claims.
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ENDNOTE
| 1/ | Georgia Code Annotated §13-8-2, though amended since 2001, still contains an anti-indemnity provision applicable to construction contracts.
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