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. I have an open CHINS case I failed a urine screen I have since got clean completed IOP classes now in after care passed home inspection my x sister in law has my children I still don't even have unsupervised when I have been clean for over 4 months my x sister wants to keep the lids for good n has my case working with her I just discovered n have proof that at one of my hearing dcs case worker stated in court to the judge that a screen was dirty which caused me not to have unsupervised this was at the beginning two weeks after my initial screen I thought the weed could have still been in my system was upset because they were suppose to check levels n see if it was going down since this was only a few weeks after initial instead they said dirty I recently requested all of my screens from redwood because I take prescriptions that will show up n I was having my doctor look at levels to verify that matched what I was prescripted because dcs case worker accused me of abuseing when I got my screens I found out that screen I took that dcs case worker stated in court to judge that caused me to not get granted unsupervised was actually negative what can I do about this this is a serious issue saying a parent failed a screen in court to judge when they didn't please advise

  2. I have a degree at law, recent MS in regulatory studies. Licensed in KS, admitted b4 S& 7th circuit, but not to Indiana bar due to political correctness. Blacklisted, nearly unemployable due to hostile state action. Big Idea: Headwinds can overcome, esp for those not within the contours of the bell curve, the Lego Movie happiness set forth above. That said, even without the blacklisting for holding ideas unacceptable to the Glorious State, I think the idea presented above that a law degree open many vistas other than being a galley slave to elitist lawyers is pretty much laughable. (Did the law professors of Indiana pay for this to be published?)

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