WestCon Tribune

September Review

Liability Protection

For the Construction Consultant -

Do Contract Provisions Really Work?

Presented by Robert Aune, Attorney, Aune & Associates

Robert Aune of Aune & Associates in San Francisco, is a real estate attorney with more than twenty-five years  experience who specializes in construction defect litigation, other real estate related law and mediation of real estate related cases. Before attending law school,  Mr. Aune was an engineer with Chevron Corporation.

Using as an example an actual case that he handled, Mr. Aune discussed the problems in attempting to use contract provisions to protect against unlimited liability in the event of a claim that the consultant's services were provided negligently. Such contract provisions were divided for discussion into limitation of liability provisions, e.g. liability limited to $50,000, and indemnity provisions, i.e., those intended to require that someone, usually the client, agree to defend and indemnify the consultant from claims.

The case example involved a geotechnical consulting company that was involved in a significant lawsuit brought by the client. The consultant's defense relied in large part on provisions in the agreement with the client that purported to both limit the consultant's liability to $50,000, and to require that the client indemnify the consultant for any claims.

Mr. Aune explained that such provisions may be enforceable, depending upon several factors, including whether the provisions were actually negotiated and whether they clearly notify the client of the effect of the agreement. However, he emphasized that the courts are generally reluctant to enforce such provisions, particularly if the client and the consultant are of unequal bargaining strength, for example a company contracting with an individual homeowner.

Before discussing the outcome of the case example, Mr. Aune provided specific suggestions for drafting provisions in a contract intended to protect the consultant from unlimited liability, such that they would more likely be enforceable should a claim be brought. These suggestions included requiring that the client actually initial the particular provisions, as well as providing the client the opportunity to negotiate the extent of any limitation of liability. He also recommended that consultants seriously consider whether in each case these provisions should be used, and that it should never be assumed that simple "boilerplate" provisions limiting liability will be enforced. Finally Mr. Aune discussed other methods of potentially limiting liability, including better communication and documentation regarding risk, responsibilities and instruction given to the consultant by the client during the project.

The news provided by Mr. Aune regarding the actual case example was not favorable regarding protecting oneself from liability. The court in that case refused to grant the consultant's motion to be dismissed from the case, ruling that the consultant must proceed to trial. Mr. Aune explained that the court concluded that the two separate provisions in the consultant's agreement were potentially confusing, had not been negotiated and that the agreement was between parties of unequal bargaining strength. Thus, the contract provisions relied upon by the consultant turned out to be largely worthless.

There were a great number of question following Mr. Aune's presentation, including a suggestion by Westcon member Rod Tosetti that the Board discuss creation of a standard "Westcon Approved" service agreement that would include appropriate provisions designed to protect the consultant from unlimited liability.