When retaining environmental consultants, one of the key issues to review in the consultant’s standard terms and conditions is the limitation of liability (LOL) clause. This clause frequently seeks to cap the consultant’s liability at the amount of its fees. Because consultants are usually expected to carry at least $1MM in liability coverage, clients often want consultants to be liable for at least the amount of their insurance limits. Depending on the relative bargaining power of the parties, a compromise amount in the form of liquidated damages is usually negotiated that will be between these two extremes (usually $50K-$100K).
The LOL are occasionally challenged as being against public policy. There have been a few cases involving school districts where the courts have not honored the LOL clause but in most private litigation, the clauses are generally upheld. A recent example is Cat Iron, Inc. v. Bodine Environmental Services, Inc. , 2011 U.S. Dist. LEXIS 123057 (C.D.ILL. 10/25/11).
In this case, the plaintiff retained the defendant to perform a complete National Emission Standards for Hazardous Air Pollutants (NESHAPS) asbestos inspection and comprehensive survey report. The standard terms and conditions of the defendant’s agreement contained a limitation of liability of the $6,100 fee for the work. The agreement also provided that ” Bodine warrants that the findings contained herein have been prepared with the level of care and skill exercised by experienced and knowledgeable environmental consultants who are appropriately licensed and trained to perform asbestos building inspections . . . Bodine used due diligence inspecting the structures and sampling for suspect [asbestos containing materials]”.
As it turned out, the defendant failed to identify approximately 195,000 square feet of asbestos-containing building materials, consisting primari;y of exterior walls and roofing. The plaintiff incurred substantially more asbestos abatement costs than it had anticipated and filed a lawsuit in federal district court, alleging breach of contract; breach of express warranty; ordinary negligence; willful and wanton negligence; and negligence misrepresentation.
The defendant argued that the LOL applied and because of the liability limit, the district court did not have jurisdiction to hear the case since the damages could not reach the $75K threshold. Plaintiff asserted that the LOL was an exculpatory clause that violated public policy since both Illinois and federal law expressed interest in asbestos related matters, especially the demolition of asbestos laden buildings.
The court said that exculpatory clauses are valid and enforceable in the absence of fraud or or wanton and willful negligence, if there is substantial disparity in the bargaining position of the two parties; if upholding the exculpatory clause would be violative of the public policy; or if there is something in the social relationship between the two parties that would militate against upholding the clause.
On the public policy issue, the court agreed that the state and federal government had an interest in the health concerns associated with asbestos but that it was not clear that such concerns extended to a contract between two sophisticated corporate entities to remove asbestos from a structure. However, in a June opinion, the court reserved on the wanton and willful negligence claim and ordered further discovery.
Following discovery, the court said the plaintiff had failed to offer any admissible evidence supporting a finding that Defendant was either intentionally or recklessly willfully and wantonly negligent. The court said there clearly was no support that Defendant’s omission of the ACMs from the Report was undertaken with an actual or deliberate intent to harm the Plaintiff. Likewise, the court said while Illinois allowed claimed of reckless willful and wanton negligence inference, a plaintiff had to show that the defendant either failed to exercise ordinary care to prevent impending danger after acquiring knowledge of the impending danger, or failed to discover the danger through recklessness or carelessness when it could have been discovered by the exercise of ordinary care. The court said the plaintiff had not offered any evidence to support either circumstance.
As a result, the court found the LOL clause to be enforceable and granted summary judgement to the defendant on the willful and wanton negligence claim. However, the court decided to continue to exercise jurisdiction over the remaining claims, ruling that those claims would be subject to the LOL.