LOL!!: Are Limitation Of Liability Contract Clauses Valid?

Ian Corzine Speaking About “LOL” Provisions

Limitation of Liability (“LOL”) clauses appear in many different types of professional services contracts. Poole Professional Ltd., Drafting An Enforceable Limitation of Liability Clause, July 2003, at 1. However, increasingly, construction professionals are encountering them in contractual documents between general contractors and subcontractors. William S. Thomas, Limitation of Liability Clauses, The Harmonie Group, June 2012, at 3. LOL clauses typically limit the liability of one party to a fixed dollar amount or some proportion of the contract price. An example of a LOL provisions is the following:

In recognition of the relative risks and benefits of the Project to both the Client and the Design Professional, the risks have been allocated such that the Client agrees, to the fullest extent permitted by law, to limit the liability of the Design Professional and Design Professional’s officers, directors, partners, employees, shareholders, owners and sub-consultants for any and all claims, losses, costs, damages of any nature whatsoever whether arising from breach of contract, negligence, or other common law or statutory theory of recovery, or claims expenses from any cause or causes, including attorney’s fees and costs and expert witness fees and costs, so that the total aggregate liability of the Design Professional and Design Professional’s officers, directors, partners, employees, shareholders, owners and sub-consultants shall not exceed $__________, or the Design Professional’s total fee for services rendered on the Project, whichever amount is greater. It is intended that this limitation apply to any and all liability or cause of action however alleged or arising, unless otherwise prohibited by law, including but not limited to negligence, breach of contract, or any other claim whether in tort, contract or equity.

LOL provisions are a natural expression of the parties freedom to contract. The majority of courts throughout America recognize that parties to a commercial transaction should be free to agree as they see fit – to make a bad bargain or relinquish fundamental rights. See Purcell Tire & Rubber Co., Inc. v. Executive Beechcraft, Inc., 59 S.W. 3d 505, 508-09 (Mo. 2001); W. William Graham, Inc. v. City of Cave City, 289 Ark. 105, 107-08 (Ark. 1986); Markborough California, Inc. v. Sup. Ct., 227 Cal. App. 3d 705, 714 (Cal. Ct. App. 4^th 1991) (holding “limitation of liability provisions have long been recognized as valid in California”).