Federal Court Finds That Ambiguous Limitation-of-Liability Clause Did Not Clearly Restrict Owner’s Claims

DAK Americas Mississippi, Inc. v. Jedson Engineering, Inc. et al, No. 1:18cv31-HSO-JCG, 2019 BL 208838 (S.D. Miss. June 6, 2019)

finizioa_thumb

Anthony Finizio

This dispute arose out of the design and construction of a concrete storage slab at DAK’s polymer resin manufacturing facility located in Hancock County, Mississippi.  DAK hired Ohio-based Jedson to design and oversee the construction of a cement slab suitable for commercial operating loaders and other heavy equipment necessary to transport, unload, and stack shipping containers.  DAK allegedly discovered substantial cracking and chipping of the cement, and filed suit in federal court claiming Jedson failed to design a slab suitable for DAK’s intended purposes.  DAK asserted claims for negligent design, negligent construction management, and breach of contract.

Jedson promptly filed a Counterclaim seeking declaratory judgment determining DAK’s rights and Jedson’s contractual responsibilities.  Jedson moved for summary judgment on its Counterclaim, basing its primary argument on a limitation-of-liability clause contained within the contract DAK drafted which Jedson contended limited DAK’s recovery rights as a matter of law:

“[N]either party shall be liable to the other for any special, consequential or punitive damages, even if caused by negligence, willful misconduct or breached [sic] of contract.  The preceding sentence and the liability/remedies limitations [] do not apply to, and each party shall indemnify and defend the other against (i) fines or civil penalties; (ii) loss or damage to the indemnified party’s property; and (iii) costs (including legal fees and expenses) and liability arising from claims . . . by third parties.”

Jedson argued that the limitation on consequential damages was valid and enforceable despite the carve-out for “loss or damage to the indemnified party’s property.”  While Jedson conceded that DAK had alleged damage to its property, Jedson asserted that the exclusion was only triggered by damage to existing property and not the cement slab.

The Mississippi federal court denied Jedson’s Motion for Partial Summary Judgment in connection with the limitation-of-liability clause.  The Court also denied Jedson’s Motion for Reconsideration, concluding that Jedson had not carried its burden as the movant of demonstrating that the limitation-of-liability clause limited DAK’s rights as a matter of law.  The Court also highlighted that Jedson had not addressed DAK’s argument under North Carolina law – which governed due to a choice of law provision in the contract – that “[a]lthough ambiguous contracts are generally construed against the drafter, ambiguous limitation of liability clauses are disfavored and strictly construed.”

The Court added that even if Jedson was correct that the limitation-of-liability clause was clear and unambiguous, such that damage to existing property was necessary to trigger the exclusion, DAK presented sufficient evidence to create a genuine question of fact over whether Jedson’s actions indeed damaged DAK’s pre-existing property.

To view the full text of the court’s decision, courtesy of Bloomberg Law, click here.