Georgia Supreme Court Holds Limitation of Damages Clause in Engineering Agreement to Be an Unenforceable Indemnity Provision

Lanier at McEver, L.P. v. Planners and Engineers Collaborative, Inc.
2008 Ga. LEXIS 553 (Ga. June 30, 2008)

In this case, the Supreme Court of Georgia reversed a Court of Appeals’ decision, previously reported here, holding that a provision limiting an owner/developer’s damages against the project engineer to the fees paid for the engineer’s services was void and unenforceable as against public policy.

Lanier was the owner/developer of an apartment complex. Lanier hired the defendant engineering firm, PEC, to design various aspects of the apartment complex, including the storm sewer and sanitary drainage system. The engineering agreement contained a provision stating that the total aggregate liability of PEC and its subconsultants to Lanier “for any and all claims … shall not exceed PEC’s total fee for services rendered on this Project.” The clause applied not only to liability to Lanier, but also to “all construction contractors and subcontractors on the project or any third parties.” Following construction of the Project according to the plans and specifications prepared by PEC, problems arose with the storm water system that required modification and repair by the owner. As a result, Lanier sued PEC for negligent design, breach of express contractual warranty and litigation expenses.

PEC filed a motion for partial summary judgment based on the contractual limit on the damages Lanier could recover to the amount of fees it paid PEC. The trial court granted the partial summary judgment motion and the Court of Appeals affirmed, concluding that the provision was an enforceable limitation of liability clause.

On appeal, the Georgia Supreme Court found that the provision was void and unenforceable under a Georgia statute. Under the applicable statute, a provision in an agreement which purports to indemnify a party to a construction project against liabilities for personal injury or property damages allegedly resulting from its sole negligence is void and unenforceable. The Supreme Court found that the provision in the parties’ agreement limiting PEC’s damages was, in effect, an indemnity provision prohibited by the Georgia statute. The Court held that because the clause applied to liabilities to third parties as well as direct claims of Lanier, it would, in effect, shift liability for third party claims for which PEC was responsible to Lanier once the limit of liability was exceeded, in contravention of the statute. Accordingly, the Court distinguished the provision from similar provisions upheld in other jurisdictions by reasoning that the other provisions did not limit the liability with respect to third parties, but limited the limitation of liability to claims arising between the contracting parties. Here, because the threshold fee limit had already been exhausted by costs for repair work, it construed the clause as providing that PEC could recover from Lanier losses for all future third party claims.

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