The most important clause to include in your contracts for professional services is a limitation of liability clause. If you include an enforceable and well-drafted limitation of liability clause, you will substantially limit your risk on your next project.
In South Carolina, limitation of liability clauses are generally enforceable. In 2013, the South Carolina Supreme Court enforced a limitation of liability clause contained in the contract of a home inspector that limited the home inspector’s liability to the home inspection fee paid by the client. The Supreme Court rejected arguments that the clause was not enforceable because it violated South Carolina public policy or was unconscionable. Gladden v. Boykin, 402 S.C. 140, 739 S.E.2d 882 (2013). https://caselaw.findlaw.com/sc-supreme-court/1626783.html. More recently, in 2016, the South Carolina Supreme Court again upheld a limitation of liability clause in an investment advisor contract which limited liability for incidental, indirect, special, consequential or punitive damages. Maybank v. BB&T Corp., 416 S.C. 541 (2016). https://law.justia.com/cases/south-carolina/supreme-court/2016/27640.html.
Your clients are not likely to present you with contracts containing a limitation of liability clauses. In fact, many standard contract forms do not contain a limitation of liability clause. But, your standard form of contract or proposal should always contain such a provision and you should add one to any contract that you sign. Courts in many states enforce limitation of liability clauses in contracts between businesses. Courts are much more skeptical of such clauses in contracts involving residential construction and those contracts must be very carefully written to make sure you can enforce the limit.
So what should your limitation of liability clause say?
It must include a reasonable limit. The clause should limit your liability to something reasonable in light of the scope of your work and the amount to be paid to you. There must be some relationship between risk and reward. If the scope of work that you are performing is very small, the limit of liability can be relatively small. On the other hand, if your scope of work is substantial or your work creates a substantial risk of catastrophic failure, do not include a very small limit of liability or the court may not enforce the limit because it is unconscionable. What are the options?
- A lump sum limit of a particular dollar amount. This is the most straightforward and a preferred choice.
- A limit to the amount paid. If you use this type of limit, make sure it is the amount actually paid, not the contract fee or the fee billed. Your client may not pay the fee, particularly if there is some dispute.
- A combination of both. For example, Engineer’s liability … is limited to $50,000.00 or the fee paid to Engineer under this Agreement, whichever is greater. You might choose such a clause to use in your standard proposal because your scope of services may vary, but you want to make sure there is a top end limit to your liability, in this case $50,000.00.
If you need legal advice concerning a design or construction issue, please contact the attorneys of Gibbes Burton, LLC at (864) 327-5000. We want to help make your projects a success.