A Contractor's Liability for Negligence
Contractors may be held liable for their negligent performance of a contract. Under the economic loss rule, economic loss alone precludes punitive damages—additional damages to punish for wrongful conduct.
Parties to a contract owe to each other the duty to perform the tasks they agreed upon. Negligence in performing or nonperforming those tasks is both a tort and a breach of contract. One court specified that if the negligence (or even gross negligence) of a contractor only results in economic loss to the subject matter of the contract, punitive damages are not recoverable. Also, lost profit because of negligent performance of the contract did not constitute a tort. So, as James E. Smith and John W. Lynd note in their article Construction Contracts: Liability for Negligent Performance, the application of the economic loss rule is not clear because economic loss beyond the subject matter of a contract may permit punitive damages.
To avoid liability in contract or tort, contractors can include “limitation of liability” clauses in their contracts. Smith & Lynd offer an example: “Notwithstanding anything to the contrary, the contractor shall not be liable for any special, indirect, consequential or incidental damages, including, without limitation, loss of profits or business interruption, even if the damage is to property beyond the subject matter of the agreement, and even if caused by the contractor’s negligence.”
A court will enforce such limitation of liability clauses where the parties have a fair bargaining position and legitimate commercial reasons justify such clauses.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Posted by Ryan McCabe at 2/23/2009 8:27 AM 
Categories: Liability and Risk Management, Contractors, Punitive Damages
Categories: Liability and Risk Management, Contractors, Punitive Damages
Comments