Source: http://www.stites.com
By: Stephen M. Reams, Stites & Harbison Client Alert
Florida enacted legislation making limitation of liability clauses for design professionals enforceable when certain conditions are met.  The new law, passed last year, reverses the decision of a Florida appellate court that ruled in 2010 that any limitation of liability clause purporting to limit the liability of a design professional was against public policy and unenforceable.
In 2010, Florida’s Third District Court of Appeals created a tide of concern when it ruled that limitation of liability clauses in favor of design professionals are unenforceable as a matter of law.  The case of Witt v. La Gorce Country Club, Inc., 35 So.3d 1033 (Fla. 3d DCA 2010), involved a suit by a country club against a design-builder, a geologist, and the geologist’s company.  Witt, who was the geologist, his company, Gerhardt M. Witt and Associates, Inc. (“GMWA”), and ITT Industries, Inc. (“ITT”) the design-builder entered into various contracts with the country club to design and install a reverse osmosis water treatment and irrigation system to replace the municipal water supply.
ITT served as the design-builder.  Witt and GMWA entered into various agreements for consulting services and project coordination.  The agreements between La Gorce and GMWA contained a limitation of liability clause.  The system was eventually completed but experienced increasing problems over the next 14 months.  Ultimately, the system failed completely.
La Gorce sued all three providers.  At trial, both GMWA and ITT were found liable to La Gorce for professional malpractice.  However, the court ruled that the limitation of liability clause in the contract exculpated GMWA from any responsibility.  Conversely, the court ruled that the same clause did not apply to Witt individually.  The court reasoned that Witt could not benefit from the contractual clause both because he was not a party to the agreement AND because such clauses do not apply to professionals.
Appeals were filed to Florida’s Third District.  The appellate court agreed that the limitation of liability clause did not apply to Witt individually.  The court ruled that any limitation clause that purports to apply to an individual design professional is unenforceable as a matter of law.  The court of appeals relied upon Fla. Stat. Ann. § 492.111(4), which provides that a geologist who practices through a corporation or partnership is not relieved from individual liability for his or her own negligent acts, and Moransais v. Heathman, 744 So.2d 873 (Fla. 1999), in which the Florida Supreme Court ruled that lawyers could not legally or ethically limit a client’s remedies by contract.   With respect to Witt, the court of appeals reasoned that “a cause of action in negligence exists irrespective, and essentially, independent of a professional services agreement . . . therefore, we find that the limitation of liability provision was, as a matter of law, invalid and unenforceable as to Witt.”  Witt, 35 So.3d 1033, 1039.
The Witt case stands in stark contrast to the law in several other states where limitation of liability clauses in favor of design professionals are enforced.  For example, in Arizona and New Mexico, limitation of liability clauses have been upheld between the parties to the agreement.  (1800 Ocotillo, LLC v. WLB Group, Inc., 217 Ariz. 465 (176 P.3d 33)(2008), and Fort Knox Self Storage v. Western Technologies, 140 N.M. 233 (142 P.3d 1)(2006)).  In Georgia, design professionals may also benefit from limitation of liability clauses provided that they do not run afoul of O.C.G.A. § 13-8-2(b), the state’s anti-indemnity statute that prohibits indemnification for losses or claims resulting from the indemnified party’s sole negligence.  Lanier at McEver, L.P. v. Planners and Engineers Collaborative, Inc., 284 Ga. 204, 208, 663 S.E.2d 240, 243-244 (Ga. 2008).  In fact, the majority of states appear to permit design professionals to contractually limit their liability to various degrees.
Last year, in apparent response to the Witt decision, the Florida legislature enacted Fla. Stat. Ann. § 558.0035 to allow design professionals to protect themselves from individual liability under certain circumstances.  This statute provides that a design professional employed by a business entity will not be individually liable for damages resulting from negligence provided the following conditions are met: (1) the design professional is employed by a business entity or is the agent for one; (2) the contract for services is between the business entity and a claimant or other entity for the provision of professional services to the claimant; (3) the individual design professional is not a named party on the contract; (4) “[t]he contract includes a prominent statement, in uppercase font that is at least 5 point sizes larger than the rest of the text, that, pursuant to [Fla. Stat. Ann. § 558.0035] an individual employee or agent may not be held individually liable for negligence”; (5) the business entity maintains any professional liability insurance required under the contract; and, (6) any damages are solely economic in nature and do not involve personal injury or property damages not subject to the contract.  The statute defines the term “business entity” broadly to include any corporation, limited liability company, partnership, limited partnership, proprietorship, firm, enterprise, franchise, association, self-employed individual, or trust, whether fictitiously named or not, doing business in Florida.
Fla. Stat. Ann. § 558.0035 brings Florida in line with the majority position of permitting design professionals to limit their individual liability by contract.  However, design professionals would be well advised to abide strictly by the statute when seeking the protection of a limitation of liability provision in a contract for services in Florida.