Limitations of Liability in Construction Contracts: Ironclad Protection or Legal Illusion?

This article was originally published in the Seattle Daily Journal of Commerce on June 10, 2025.

A contract’s limitation of liability or “LOL” clause is often the subject of considerable attention and negotiation between contracting parties and frequently arises during the contract drafting process in which owners, contractors, suppliers, and design professionals seek to do business.  More often, these provisions are included in contracts with or proposals from architects and engineers, design professionals, or design firms that usually do not have significant assets to satisfy large monetary judgments.

The clause, properly drafted, can help balance the equities of the business transaction and manage or mitigate risk from the design professional’s perspective.  Project owners or developers usually object to these clauses on the basis that they erode important rights of recovery against the design professional for losses caused by the professional’s breach of contract or negligent errors or omissions.  Design professionals seek to rely on the efficacy of these clauses as an important safeguard against malpractice risk and a backstop to professional liability (or “errors and omissions”) insurance.

But does an LOL clause apply to conduct that goes beyond mere negligence?  Design professionals are generally wise to seek refuge and protection from their contract’s terms and conditions. In Washington, an engineer’s duty to perform its work in a manner that does not cause unreasonable risk of injury to persons or property is well established as an independent tort duty.  When conduct can be classified as negligence and causes unreasonable risk of harm, it is actionable, regardless of whether there is a corresponding contract duty.

In a typical case where an owner asserts a negligence-based claim against a design professional, the design professional would naturally retreat to identify and rely upon a broad LOL provision in the contract. The clause’s terms, such as “any and all claims,” may encompass breach of contract and tort (i.e., negligence) claims.  But how does Washington law treat tort claims, if factually supported, that extend beyond negligence, such as gross negligence, reckless behavior, or intentional misconduct?

It's possible the LOL clause may be challenged on the grounds of unconscionability, if, for example, the clause was not negotiated and is buried in tiny font within a litany of terms and conditions of a unilateral proposal. The clause also may not be enforced to exculpate a contracting party (including design professionals) for grossly negligent acts. This was the case in Liberty Furniture, Inc. v. Sonitrol of Spokane, Inc., a case where the Washington Court of Appeals ruled that gross negligence, rather than willful or wanton conduct, is sufficient to invalidate a contractual exculpatory clause for negligence.

In Liberty, the Liberty furniture company contracted with Sonitrol for security monitoring services related to Liberty’s premises. After the parties signed the contract, a sprinkler head in Liberty’s fire suppression system malfunctioned and flooded the premises, causing substantial damage to the building and the property inside. The contract contained an LOL, which provided that, “if Sonitrol should be found liable for loss or damage due to a failure of its services in any respect, even if due to Sonitrol’s negligence, its liability shall be limited to a sum equal to ten percent of the annual service charge for the above described premises or $250 whichever is greater, as liquidated damages, and not as a penalty, and that this liability shall be exclusive.”  Sonitrol appealed the trial court judgment, predicated on the jury’s determination that Sonitrol was grossly negligent and thus could not rely on the LOL clause in its contract with Liberty. The issue on appeal was what level of conduct must be proved to invalidate a contractual exculpatory clause for negligence. 

The Court of Appeals examined the “degrees of negligence based on the quantum of care required by a person in a given circumstance.”  It found that “gross negligence is negligence substantially and appreciably greater than ordinary negligence,” while “[w]illful or wanton misconduct falls between simple negligence and an intentional tort and is sufficient where an actor ‘“know[s], or has reason to know, of circumstances which would bring home to the realization of the ordinary reasonable [person] the highly dangerous character of his conduct.”’”   This (inartful) definition of gross negligence appears to involve a factually sensitive inquiry into what constitutes conduct that rises beyond the standard of mere negligence but doesn’t quite approach and meet the generally accepted definition of reckless behavior (i.e., the conscious indifference to a known risk).   Based on its articulated standard for gross negligence, the Court ultimately affirmed the trial court’s judgment, predicated on the jury’s review of the evidence, which was determined to be sufficient to circumvent Sonitrol’s LOL clause. 

Thus, a contract’s LOL clause may not be as broadly protective as envisioned at contract formation. Depending on the facts of a particular situation or claim, a party seeking to rely on LOL clauses may be met with unintended consequences and liability that extend beyond the anticipated purview of the contract language.  LOL clauses should be carefully reviewed and drafted by all parties to manage and mitigate risks on a construction project.

See original article here.