Are Limitation of Damages Clauses OK?

Yes, they are, and Soja v Keystone Trozze, LLC   2013 NY Slip Op 03147   Decided on May 2, 2013  Appellate Division, Third Department  is an example of their application.  In this professional malpractice (architects/house designers) plaintiff alleges that they built the house in violation of FEMA / flood elevation principals.
 

"Here, plaintiffs allege that a letter they received from Keystone in 2001 proves that Keystone failed to use the flood elevation report provided by plaintiffs' surveyor or to consult with the local Federal Emergency Management Agency coordinator when designing the home, as Keystone was contractually obligated to do [FN1]. Plaintiffs claim that, as a result of Keystone's allegedly faulty design plans, the first floor of their home was built almost two feet lower than applicable regulations allow, leading to increased flood insurance premiums, among other things. Plaintiffs contend that Keystone's conduct constitutes gross negligence, abrogating the limitation of liability clause. "

""As a general rule, parties are free to enter into contracts that absolve a party from its own negligence or that limit liability to a nominal sum" (Abacus Fed. Sav. Bank v ADT Sec. Servs., Inc., 18 NY3d 675, 682-683 [2012] [citations omitted]). As a matter of public policy, however, exculpatory or limitation of liability clauses are not enforceable in the face of grossly negligent conduct (see id. at 683; Sommer v Federal Signal Corp., 79 NY2d 540, 554 [1992]; Kalisch-Jarcho, Inc. v City of New York, 58 NY2d 377, 384-385 [1983]). "This applies equally to contract clauses purporting to exonerate a party from liability and clauses limiting damages to a nominal sum" (Sommer v Federal Signal Corp., 79 NY2d at 554). "

We disagree. The parties do not dispute the legal standard to be applied in determining whether conduct amounts to "gross negligence." In this context, it is settled that "gross negligence differs in kind, not only in degree, from claims of ordinary negligence. It is conduct that evinces a reckless disregard for the rights of others or smacks of intentional wrongdoing" (Finsel v Wachala, 79 AD3d 1402, 1404 [2010] [internal quotation marks and citations omitted]; see Abacus Fed. Sav. Bank v ADT Sec. Servs., Inc., 18 NY3d at 683).

In our view, even assuming that the letter relied upon by plaintiffs may ultimately be used to prove a breach of contract or professional malpractice by Keystone, it does not raise a question of fact as to whether Keystone was grossly negligent. That is, while plaintiffs may have stated causes of action based upon breach of contract and common-law negligence, the conduct alleged does not evince the necessary reckless indifference to the rights of others that would render the limitation of liability clause unenforceable (see Colnaghi, U.S.A. v Jewelers Protection Servs., 81 NY2d 821, 824 [1993]; David Gutter Furs v Jewelers Protection Servs., 79 NY2d 1027, 1029 [1992]; Rector v Calamus Group, Inc., 17 AD3d 960, 961-962 [2005]; compare Abacus Fed. Sav. Bank v ADT Sec. Servs., 18 NY3d at 683-684; Kalisch-Jarcho, Inc. v City of New York, 58 NY2d at 385). Accordingly, Supreme Court properly granted partial summary judgment in Keystone's favor.

 

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