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Specificity requirement does not extend to limitations of liability, 7th Circuit rules

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The 7th Circuit Court of Appeals has ruled that a contract clause limiting liability stands because the two commercial entities that entered into the agreement were sophisticated and knowingly negotiated the terms.

SAMS Hotel Group LLC filed a diversity-jurisdiction suit against Environs, Inc., an architectural firm, for breach of contract and negligence. The hotel group had contracted with Environs to build a six-story Homewood Suites hotel in Fort Wayne.

Shortly after the contract was signed in March 2007, the design and construction process began. However, just as the hotel was nearing completion, structural defects were discovered that eventually led to the structure being condemned and demolished.

SAMS estimated its loss topped $4.2 million.

The original contract the two parties entered into provided Environs a flat fee of $70,000 for its work. The contract also contained a clause limiting Environs’ liability for breach of contract to an amount not exceeding “the total lump sum fee due to negligence, errors, omissions, strict liability, breach of contact or breach of warranty.”

SAMS filed a diversity-jurisdiction suit against Environs for breach of contract and negligence. The U.S. District Court of the Southern District of Indiana held the limitation of liability clause was enforceable which capped SAMS’s breach of contract claim at $70,000.

In SAMS Hotel Group, LLC, doing business as Homewood Suites Hotel v. Environs, Inc., 12-2717, the 7th Circuit affirmed.

SAMS argued that the limitation of liability provision in the contract was not enforceable because the provision did not refer specifically to a limit on damages for Environs’ own negligence. The provision, SAMS asserted, covered only Environs liability for negligence of third parties.

While Indiana courts have made specificity a requirement in indemnification and exculpatory clauses, they have not spoke clearly regarding limitation of liability clauses in sophisticated commercial contracts. SAMS argued the differences among the provisions were not significant so the specificity requirement should apply to the limitation of liability.

The Circuit Court was not persuaded. It held that the difference types of clauses serve different purposes and Indiana case law does not indicate they should be analyzed alike. Moreover, while a limitation of liability clause can be harsh when it limits a party’s liability to only nominal damages, SAMS knew what it was getting into.

“…SAMS and Environs were sophisticated commercial entities that knew the risks and freely bargained for the terms of the contract, including the limitation of liability clause. SAMS did not unknowingly agree to the limitation of liability clause or assume these risks,” Judge David Hamilton wrote for the court. “To the extent it suffered a harsh result, it cannot blame the general nature of limitation of liability clauses.”
 

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  1. Indianapolis employers harassment among minorities AFRICAN Americans needs to be discussed the metro Indianapolis area is horrible when it comes to harassing African American employees especially in the local healthcare facilities. Racially profiling in the workplace is an major issue. Please make it better because I'm many civil rights leaders would come here and justify that Indiana is a state the WORKS only applies to Caucasian Americans especially in Hamilton county. Indiana targets African Americans in the workplace so when governor pence is trying to convince people to vote for him this would be awesome publicity for the Presidency Elections.

  2. Wishing Mary Willis only God's best, and superhuman strength, as she attempts to right a ship that too often strays far off course. May she never suffer this personal affect, as some do who attempt to change a broken system: https://www.youtube.com/watch?v=QojajMsd2nE

  3. Indiana's seatbelt law is not punishable as a crime. It is an infraction. Apparently some of our Circuit judges have deemed settled law inapplicable if it fails to fit their litmus test of political correctness. Extrapolating to redefine terms of behavior in a violation of immigration law to the entire body of criminal law leaves a smorgasbord of opportunity for judicial mischief.

  4. I wonder if $10 diversions for failure to wear seat belts are considered moral turpitude in federal immigration law like they are under Indiana law? Anyone know?

  5. What a fine article, thank you! I can testify firsthand and by detailed legal reports (at end of this note) as to the dire consequences of rejecting this truth from the fine article above: "The inclusion and expansion of this right [to jury] in Indiana’s Constitution is a clear reflection of our state’s intention to emphasize the importance of every Hoosier’s right to make their case in front of a jury of their peers." Over $20? Every Hoosier? Well then how about when your very vocation is on the line? How about instead of a jury of peers, one faces a bevy of political appointees, mini-czars, who care less about due process of the law than the real czars did? Instead of trial by jury, trial by ideological ordeal run by Orwellian agents? Well that is built into more than a few administrative law committees of the Ind S.Ct., and it is now being weaponized, as is revealed in articles posted at this ezine, to root out post moderns heresies like refusal to stand and pledge allegiance to all things politically correct. My career was burned at the stake for not so saluting, but I think I was just one of the early logs. Due, at least in part, to the removal of the jury from bar admission and bar discipline cases, many more fires will soon be lit. Perhaps one awaits you, dear heretic? Oh, at that Ind. article 12 plank about a remedy at law for every damage done ... ah, well, the founders evidently meant only for those damages done not by the government itself, rabid statists that they were. (Yes, that was sarcasm.) My written reports available here: Denied petition for cert (this time around): http://tinyurl.com/zdmawmw Denied petition for cert (from the 2009 denial and five year banishment): http://tinyurl.com/zcypybh Related, not written by me: Amicus brief: http://tinyurl.com/hvh7qgp

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