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Limitation of liability provision enforceable

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DTCI-Temple-DavidOn March 2, 2011, the federal district court in Indianapolis issued a rather innocuous and unassuming opinion in SAMS Hotel Group, LLC v. Environs, Inc. (S.D. Ind. 2011), No. 1:09-CV-00930-TWP-TAB. However, its ramifications may be far-reaching and are surely welcomed by design professionals working on projects in Indiana.

The court granted an architectural firm’s motion for partial summary judgment and denied the owner’s motion for partial summary judgment, finding that (1) the owner’s negligence claim is barred by the economic loss doctrine, based on the reasoning articulated by the Indiana Supreme Court in Indianapolis-Marion County Public Library v. Charles Clark & Linard, P.C., 929 N.E.2d 722 (Ind. 2010), and (2) the architectural firm’s liability is contractually limited to the lump-sum fee paid by the owner. It is the latter finding that is most significant, yet it should not be surprising in light of contract law in Indiana. While the court’s decision does not cite to significant case law on this issue, the court found the contractual language at issue to be unambiguous, stating that “[e]ven a person with limited acumen would interpret this contract to mean that Environs could owe SAMS no more than what it was paid if it did not deliver a sound design as promised.”

SAMS Hotel Group owned a Homewood Suites Hotel under construction in Fort Wayne which the Allen County building commissioner ordered to be demolished because of its structural instability. SAMS sued Environs Inc., the architectural firm hired to design the hotel and perform certain oversight functions during construction, as well as the steel fabricator and the engineering firm that provided engineering services relating to the steel framing. The parties stipulated to the dismissal of the steel fabricator and the engineering firm leaving Environs Inc. as the sole defendant.

The parties’ contract provided: “The Owner agrees that to the fullest extent permitted by law, Environs Architect/Planners Inc.[’s] total liability to the Owner shall not exceed the amount of the total lump sum fee due to negligence, errors, omissions, strict liability, breach of contract or breach of warranty.” SAMS asserted that the provision was unenforceable because it did not unequivocally make clear that Environs’ liability was limited for its own wrongful acts. However, the court rejected SAMS’s argument, finding in part that the provision at issue was a limitation of liability provision, not an exculpatory clause. Moreover, the court found “the limiting language in the contract is unmistakably clear” and that “[t]his is not a situation where an unsuspecting or unknowing party is disadvantaged by a murky provision.”

Under Indiana law, absent an ambiguity, Indiana courts give the terms of a contract their plain and ordinary meaning. Indiana Dept. of Transp. v. Shelley & Sands, Inc., 756 N.E.2d 1063, 1069-1070 (Ind. Ct. App. 2001). Furthermore, a “contract is unconscionable if a great disparity in bargaining power exists between the parties which leads the weaker to sign a contract unwillingly or without being aware of its terms.” White River Conservancy Dist. v. Commonwealth Eng., 575 N.E.2d 1011, 1017 (Ind. Ct. App. 1991). The court made it clear that in this situation, it was faced with neither ambiguous terms nor disparate bargaining power between the parties.

The court ultimately concluded that “[i]f SAMS wanted greater protection from a negligent design, it could have obtained such protection through different contractual terms or a performance bond.” The court appears to have implicitly rejected any invitation to rewrite the parties’ contract based upon the limitation of liability provision somehow violating public policy. From an outsider’s perspective, the court’s decision is one of the purest forms of applying the four corners’ doctrine, and it serves as a reminder to contracting parties that unambiguous contractual provisions – even if they later seem like a “bad deal” for one of the parties – can and will be enforced.•

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 David A. Temple
  is a partner at Drewry Simmons Vornehm in Carmel, where he focuses on professional liability, construction, products liability and environmental insurance matters. He is on the board of directors of the Defense Trial Counsel of Indiana and a member and former chair of the Construction Law Section. The opinions expressed in this column are the author’s.

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