Contractual Liability Limitation Enforcement. The Colorado Court of Appeals has ruled that an ambiguous limitation of liability clause in a contract between sophisticated commercial entities is enforceable. The case deciding this issue was Johnson Nathan Strohe, P.C. v. MEP Engineering, Inc., Case No. 20CA0950 (Colo. App. Sept. 23, 2021), https://www.courts.state.co.us/Courts/Court_of_Appeals/Opinion/2021/20CA0950-PD.pdf. The case involved a dispute between an architecture firm and an engineering firm over the design of the heating and hot water systems of an apartment building, which was handled by the engineering firm. The design contract included a limitation on liability clause providing as follows:
Limitation of Liability: In light of the limited ability of the Engineer to affect the Project, the risks inherent in the Project, and of the disparity between the Engineer’s fees and the potential liability exposure for problems or alleged problems with the Project, the Client agrees that if the Engineer should be found liable for loss or damage due to a failure on the part of MEP-ENGINEERING, INC. such liability shall be limited to the sum of two thousand dollars ($2,000 or twice The Engineer’s fee whichever is greater) as consequential damages and not as penalty, and that is liability exclusive.
The Court of Appeals concluded that this clause was ambiguous. Despite the ambiguity, the Court of Appeals held that the clause was enforceable. The Court explained that this was not an exculpatory clause seeking to avoid liability altogether, which would not have been enforceable if ambiguous. In reaching its decision, the Court followed the Third Circuit Court of Appeals opinion in Valhal Corp. v. Sullivan Assocs., Inc., 44 F.3d 195 (3d Cir. 1995). The Court also distinguished prior holdings that limitation of liability clauses in bailment contracts are not enforceable if ambiguous. At the end of its contractual liability limitation enforcement analysis, the Court concluded that “the meaning [of an ambiguous liability limitation in a commercial contract] is a question of fact that courts must determine using ordinary methods of contract interpretation.”