How Far Can A Damage Limitation Go?
Standard form construction contracts often include clauses limiting the amount and types of damages that can be recovered. That contract drafters can go too far is illustrated by the recent Mississippi Supreme Court decision, Pitts v Watkins, Download file, which held that a home inspector could not limit his damages for negligence to the price paid for the inspection.
The Court held the inspection contract substantively unconscionable because its remedy limitations unreasonably favored the inspector and effectively deprived the homeowner of a meaningful remedy. Terms the Court found too one sided (i) allowed the inspector to sue for any unpaid fee plus attorneys fees while requiring the owner to arbitrate, (ii) limited the homeowners recourse to the fee paid ($265) when the foreseeable compensatory damages was thousands of dollars and released any claims for consequential damages and (iii) required arbitration through the American Arbitration Association whose fees exceeded the recoverable damages.
The standard form contracts promoted by the American Institute of Architects (AIA) contain a "mutual" waiver of consequential damages. Because the clause is mutual and because commercial entities are deemed to be sophisticated such clauses are less likely to be held substantively unconscionable. Whether the AIA clause is truly mutual or give one party an advantage over another if a dispute arises is fairly debatable as noted by this web article by Brian Wallace. A quick Lexis check revealed only one unpublished Connecticut decision Download file construing the AIA limitations clause. Are you aware of others?
A 2004 Virginia district court decision Download file upheld the use of a clause limiting damages for breach of warranty to the price paid for the warranted items. The parties involved, however, were commercial entities who presumably could have negotiated different terms.