Having a well-drafted contract is one of the most important acts you can take to minimize your risks on a building project. As such, you should consider including a waiver of liability for consequential and punitive damages in your next contract. The importance of an enforceable waiver for consequential and punitive damages is hard to overstate, since these types of damages can be hard to define and may result in large and unexpected claims. In a recent case, the South Carolina Supreme Court held that a liability waiver for punitive damages was enforceable and provided guidance on drafting enforceable liability waivers.
In Maybank v. BB&T, the South Carolina Supreme Court held that a liability limitation clause barred punitive damages. However, the Supreme Court warned that liability waivers are disfavored, may be unenforceable in certain situations and will be strictly construed against the drafter. The Court also stated that liability waivers may be unenforceable if they are unconscionable, violate public policy or if the party seeking enforcement has committed fraud.
In Maybank, a sophisticated investor (Maybank) contracted with BB&T for investment and wealth management services. After his investment strategy soured, Maybank sued BB&T for faulty investment advice. The contract between Maybank and BB&T had a limited liability provision, which provided:
Bank and Investment Advisor shall not be liable with respect to their services under this Agreement except for any loss attributable to their negligence or willful misconduct. In no event shall Bank or Investment Advisor be liable for any incidental, indirect, special, consequential or punitive damages.
A jury found for Maybank and awarded $3,100,000 in actual damages, $5,000,000 in punitive damages and granted Maybank’s motion to treble (triple) the actual damages from $3,100,000 to $9,300,000. The trial court also awarded Maybank attorney’s fees and costs of $2,899,306 for a total judgment of $17,199,306.
The South Carolina Supreme Court held that the limited liability provision was enforceable and barred the award of punitive damages. The Court considered its preference against allowing a large corporation to contractually insulate itself from liability, but declined to void the provision because Maybank was not an “ordinary investor” and had an “extensive history as a trust advisor.” The Court also determined that the liability waiver provision did not violate public policy nor was it unconscionable. The Court stressed that the liability waiver did not deprive Maybank of all damages arising under the contract, but merely limited the type of damages he could seek – in this case, punitive, consequential, indirect or special damages. However, despite enforcing the limited liability provision, the Court indicated a real willingness to refuse enforcement of such provisions if poorly drafted or overly broad.
For construction professionals in South Carolina, the lesson from Maybank is to include a limited liability clause — incorporating waiver of consequential and punitive damages — in all contracts, because these contractual damages limitations can be enforceable.
An effective limited liability clause should be drafted precisely and carefully to avoid pitfalls that may prevent enforcement. Construction professionals should keep in mind the below tips and considerations. An effective limited liability clause should:
- Use clear and unambiguous language.
- Be specific. It should state precisely what type of damages the party agrees to waive.
- Be conspicuous. It should not be buried in the contract or written in small font. It should be in bold print, preferably underlined and in all caps.
- Limited in scope. A provision that purports to waive all damages or statutory claims may be unenforceable.
If you have any questions about limited liability clauses or other design and construction topics, we would be glad to help you. The attorneys of Gibbes Burton are passionate about helping professionals and businesses to minimize risk and build success.