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A limits of liability clause is a part of a contract that tries to set a maximum amount of liability for breaching the terms of the agreement or for other types of liability.
Until recently, Florida Limits of Liability clauses intended to protect professionals were usually enforceable as long as: (1) the clause made it clear what the parties wanted; (2) the limitation did not release any party from all responsibility and still discouraged negligence; and (3) the parties to the contract had the same amount of bargaining power[1].
In Florida, many professionals have put these clauses in their contracts to protect themselves by imposing limits on how high their potential liability can go. This has also kept professionals from being sued by setting recovery limits so low that the plaintiff's Bar is discouraged from filing claims. Additionally, these limits helped give insurance companies a solid legal basis for offering coverage for lower premiums than they might have if these caps weren't in place.
Recently, a new case in the Third District Court of Appeals for Miami-Dade County could end this protection. This "after-the-fact" loss of exposure caps could hurt professional liability insurance companies.
In a Florida case[2], the Third District Court of Appeals issued an opinion that shakes up the law and could change the way professional E&O coverage works for the foreseeable future.
La Gorce Country Club, Inc. (La Gorce) investigated the viability of irrigating its golf course with the reverse osmosis water treatment technology in 1999. To do this, La Gorce talked to ITT Industries (ITT) and hired them to design and build an irrigation system. Gerhardt M. Witt (Witt), a licensed geologist in Florida who ran his own business, Gerhardt M. Witt and Associates (GMWA), signed a contract with La Gorce for hydro-geologic consulting services on the project.
The contract contained an exculpatory provision that limited the liability for any claim, including but not limited to negligence and professional errors to a specific amount. It is important to remember that the limitation of liability clause specifically named GMWA, but Witt was not.
In the end, the system was sent to La Gorce. La Gorce used the system for about fourteen months before it broke down completely, which may have caused La Gorce some damage. La Gorce sued GMWA and Witt separately, as well as ITT.
Among other things, La Gorce sued GMWA and Witt for professional malpractice. The trial court found that both Witt and GMWA were liable to La Gorce. However, the limitation of liability clause only applied to GMWA and not to Witt.
The trial court concluded that Witt was liable because he provided services, but that the limitation clause did not protect him because he was not a party to the agreement. The trial court also held that a professional limiting a client's remedies by contract in the same manner that a manufacturer could with a customer in a commercial setting is questionable[3].
When making its decision, the Third District Court of Appeals agreed with that idea and said that even if Witt had been covered by the limitation of liability clause, the Moransais decision makes the clause unenforceable.
Moransais is not a limitation of liability clause case like Witt. Instead, the focus of this case is on an old friend called the "economic loss rule." The economic loss rule usually says that a plaintiff can only get money for real economic losses when two parties have a contract together and one party wants to sue for damages in tort because of something in the contract, or when a defect in a product damages the product but doesn't involve personal injury or property damage. In Moransais, the Florida Supreme Court said that the economic loss rule doesn't stop someone from suing a professional for negligence, even if the damages are only financial and the person who was hurt has a contract with the professional's employer.
The La Gorce opinion admits that Moransais doesn't talk about how a limits of liability clause protects a professional. It does, however, say that the Supreme Court's analysis "highlights the extra-contractual" nature of a claim against a professional. It says that Moransais means that it is necessary to have a remedy outside of the contract against a negligent professional because the contractual remedies may be inadequate. It also held that since Moransais admits that a negligence claim is possible and works outside of a professional services contract, limiting the liability to the amount in the professional services contract would be inconsistent.
How Does this Case Impact Professionals and the Insurance Companies that Cover Them?
If the case reaches the Florida Supreme Court and the Court affirms it, it means that a professional can't limit his or her liability to the terms of the contract and that exposure in malpractice cases can't be limited to a contract price or some other agreed-upon number.
The practical effect on insurance companies is big, especially in a slow market where people are looking to blame professionals. Professionals may be less likely to take on jobs they think are risky, and insurers may be less likely to cover them.
The attorneys at Nooney, Roberts, Hewett & Nowicki have decades of combined experience assisting clients in cases just like the ones mentioned above. Call us at (904) 398-1992 or fill out a quick form to schedule a free initial consultation with our aggressive civil law attorneys! ¡Hablamos español!
[1] Diesel Repower Inc. v. Islander Investments LTD., Inc., 271 F. 3d. 1318,1324 (11th Cir., 2001). See also Merrill Stevens Dry Dock Co. v. M/V Yeocomico II, 329 F. 3d 809 (11th Cir., 2003).
[2] Witt v. La Gorce Country Club Inc., 35 So. 3d 1033 (Fla. Dist. Ct. App. 2010).
[3] Moransais v. Heathman, 744 So. 2d 973 (Fla. 1999) at p. 983.
