McEver v. Planners & Engineers Collaborative, Inc.

BENHAM, Justice.

In June 2001, Lanier at McEver, L.P (“Lanier”), a large construction developer, retained Planners and Engineers Collaborative, Inc. (“PEC”), a civil engineering firm, to design a storm-water drainage system for a 220-unit apartment complex Lanier was constructing. In the contract for services, Lanier and PEC agreed to the following clause:

In recognition of the relative risks and benefits of the project both to [Lanier] and [PEC], the risks have been allocated such that [Lanier] agrees, to the fullest extent permitted by law, to limit the liability of [PEC] and its sub-consultants to [Lanier] and to all construction contractors and subcontractors on the project or any third parties for any and all claims, losses, costs, damages of any nature whatsoever[,] or claims expenses from any cause or causes, including attorneys’ fees and costs and expert witness fees and costs, so that the total aggregate liability of PEC and its subconsultants to all those named shall not exceed PEC’s total fee for services rendered on this project. It is intended that this limitation apply to any and all liability or cause of action however alleged or arising, unless otherwise prohibited by law.

After the apartment building was completed, Lanier discovered erosion and other physical damage which an expert attributed to PEC’s negligent design of the storm-water drainage system. Lanier has spent $250,000 in repairs to the system thus far and expects to spend a total of $500,000 by the time repairs are complete. To recoup its damages, Lanier sued PEC for negligent construction of the drainage system, breach of contractual warranty and litigation expenses. In response, PEC filed a motion for partial summary judgment, seeking to invoke the parties’ agreement and limit its liability for any damages owed to Lanier to $80,514, which was PEC’s total fee for services. The trial court granted PEC’s motion for partial summary judgment and the Court of Appeals affirmed. Lanier at McEver, L.P v. Planners & Engineers Collaborative, 285 Ga. App. 411 (646 SE2d 505) (2007). We granted Lanier’s petition for certiorari to determine whether the limitation of liability clause in the parties’ construction contract violates Georgia’s public policy. Because the clause violates Georgia’s public policy as set forth in OCGA § 13-8-2 (b), we reverse.

1. “As a general rule a party may contract away liability to the other party for the consequences of his own negligence without contravening public policy, . . . except when such an agreement is prohibited by statute. ...” Smith v. Seaboard Coast Line R. Co., 639 F2d 1235, 1239 (5th Cir. 1981). At the time the parties entered into their contract in June 2001, OCGA § 13-8-2 (b) provided as follows:

A covenant, promise, agreement, or understanding in or in connection with or collateral to a contract or agreement relative to the construction, alteration, repair, or maintenance of a building structure, appurtenances, and appli-anees, including moving, demolition, and excavating connected therewith, purporting to indemnify or hold harmless the promisee against liability for damages arising out of bodily injury to persons or damage to property caused by or resulting from the sole negligence of the promisee, his agents or employees, or indemnitee is against public policy and is void and unenforceable, provided that this subsection shall not affect the validity of any insurance contract, workers’ compensation, or agreement issued by an admitted insurer.

The purpose of OCGA § 13-8-2 (b) “is to prevent a building contractor, subcontractor, or owner from contracting away liability for accidents caused solely by his negligence, whether during the construction of the building or after the structure is completed and occupied.” Smith v. Seaboard Coast Line R. Co., 639 F2d at 1242. Under the statute, a provision in an agreement whereby a building contractor purports to waive liability for property damages allegedly resulting from the sole negligence of the contractor’s agents or employees is void and unenforceable. Borg-Warner Ins. Finance Corp. v. Executive Park Ventures, 198 Ga. App. 70, 71 (400 SE2d 340) (1990).

2. Georgia law defines indemnity as “the obligation or duty resting on one person to make good any loss or damage another has incurred by acting at his request or for his benefit.” (Citation and punctuation omitted.) Holmes v. Clear Channel Outdoor, 284 Ga. App. 474, 477 (644 SE2d 311) (2007).¹ Although the clause at issue in this case does not exculpate PEC from all monetary liability, it is an indemnity as defined above and as prohibited by OCGA § 13-8-2 (b), particularly regarding claims for which PEC may be solely negligent for injuries to third parties (i.e., members of the public who are not agents or construction subcontractors of Lanier or PEC). This is because the clause applies to “any and all claims” by third parties and shifts all liability above the fee for services to Lanier no matter the origin of the claim or who is at fault. Thus, while a third party is not precluded from suing PEC for any negligent actions in constructing the storm-water drainage system, the clause at issue here allows PEC to recover any judgment amount entered against it from Lanier once the $80,514 threshold has been surpassed, including judgment amounts on third-party claims for which PEC is solely negligent.

In this case, the $80,514 threshold has already been met insofar as Lanier has expended a quarter of a million dollars to repair the drainage system. As a result, PEC will be able to recover from Lanier losses for all future third-party claims. This complete avoidance of liability to third parties for sole negligence in a building contract is exactly what OCGA § 13-8-2 (b) prohibits. See Smith v. Seaboard Coast Line R. Co., 639 F2d at 1242; Federated Dept. Stores v. Superior Drywall & Acoustical, 264 Ga. App. 857 (1) (592 SE2d 485) (2003) (OCGA § 13-8-2 (b) is violated by a clause which required subcontractor to be liable to store owner for “all damage or injury of any kind or nature” where there was no provision for insurance covering the sole negligence of both parties). See also Piedmont Arbors Condo. Assn. v. BPI Constr. Co., 197 Ga. App. 141 (397 SE2d 611) (1990) (contract clause did not violate OCGA § 13-8-2 (b) where it prohibited homeowners’ association from suing construction company for structural defects, but did not preclude individual homeowner from making such claims). Nothing in OCGA § 13-8-2 (b) permits a construction party to shift its third-party liability for its sole negligence to another contractor, no matter how savvy the parties or how high the damages cap.²

Nevertheless, PEC points to cases from other jurisdictions to support the argument that this clause does not violate public policy; however, decisions from other jurisdictions that uphold the enforcement of certain limitation of liability clauses may be distinguished from the clause in this case. For example, in Valhal Corp. v. Sullivan Assoc., 44 F3d 195 (3rd Cir. 1995), the developer agreed the architect’s liability to the developer and its project contractors/subcontractors for negligent acts would be limited to $50,000 or the total fee for services,⁸ but did not agree that it would limit the liability of the architect regarding “any third parties for any and all claims” or that the limitation would “apply to any and all liability or cause of action however alleged or arising.”^{3 4} These two phrases, which appear in the clause at issue, shift PEC’s liability for third-party negligence claims, which could be brought by any member of the public, to Lanier who would be required to reimburse appellee for all third-party damages owed by PEC above the negotiated damages cap, including damages for which PEC is solely negligent.^{5 6}This phrasing in the parties’ clause violates the intent of OCGA § 13-8-2 (b) because it acts as an indemnity or “hold harmless” clause even if such words do not appear in the parties’ agreement.⁸ Federated Dept. Stores, supra, 264 Ga. App. at 859-860 (clause where subcontractor assumed liability for “all damage or injury of any kind or nature . . . to all persons” was void under OCGA § 13-8-2 (b)). See also Frazer v. City of Albany, 245 Ga. 399, 401-402 (265 SE2d 581) (1980) (construction contract clause which sought to indemnify party from “all claims” and to hold harmless against “any loss” was void); Nat. Candy Wholesalers v. Chipurnoi, Inc., 180 Ga. App. 664 (350 SE2d 303) (1986) (clause that sought to indemnify party for “any claim” included claims for which the party was solely negligent and, therefore, was void under OCGA § 13-8-2 (b)); Hartline-Thomas, Inc. v. Arthur Pew Constr. Co., 151 Ga. App. 598 (260 SE2d 744) (1979) (contract clause that sought to indemnify contractor for its own negligence was void as against public policy). Therefore, we hold this clause to be void under OCGA § 13-8-2 (b).

3. Assuming without deciding that this case is analogous to Emory Univ. v. Porubiansky, 248 Ga. 391, 393 (282 SE2d 903) (1981) insofar as it involves professional engineers who are statutorily-charged with maintaining the safety and welfare of the public,⁷ we need not address this clause’s viability under OCGA § 13-8-2 (a)⁸ because the clause violates Georgia’s public policy under OCGA § 13-8-2 (b).

Judgment reversed.

All the Justices concur, except Hines and Melton, JJ., who dissent.

1 See also Parker v. Puckett, 129 Ga. App. 265 (199 SE2d 343) (1973), in which the Court of Appeals stated:

An indemnity contract is defined by Black’s Dictionary of Law as “[a]n agreement between two parties, whereby the one party, the indemnitor, either agrees to indemnify and save harmless the other party, the indemnitee, from loss or damage, or binds himself to do some particular act or thing, or to protect the indemnitee against liability to, or the claim of, a third party.” [Cit.] “Indemnity” means “reimbursement, restitution, or compensation.” [Cit.] “In a contract of indemnity the indemnitor, for a consideration, promises to indemnify and save harmless the indemnitee against liability of the indemnitee to a third person, or against loss resulting from such liability. The contract of the indemnitor is an original undertaking.” [Cit.] As stated in the written opinion of the trial court, “[a]n indemnity contract differs from a guaranty in that the former is an original rather than a collateral undertaking and generally undertakes to make good the promisee’s loss resulting from his liability to another rather than from another’s liability to him.” [Cit.]

2 Parties may avoid violating OCGA § 13-8-2 (b) if their agreement also includes an insurance clause which shifts the risk of loss to an insurer, no matter who is at fault. ESI, Inc. of Tennessee v. Westpoint Stevens, Inc., 254 Ga. App. 332 (1) (562 SE2d 198) (2002) (no violation of OCGA § 13-8-2 (b) where insurance clause encompassed indemnity clause); Glazer v. Crescent Wallcoverings, Inc., 215 Ga. App. 492 (1) (451 SE2d 509) (1994) (where landlord and tenant contract showed intent to shift liability for fire to insurer, there was no violation of OCGA § 13-8-2 (b)). There is no allegation that such an insurance clause exists in this case.

3 The clause in Valhal read fully as follows:

The OWNER agrees to limit the Design Professional’s liability to the OWNER and to all construction Contractors and Subcontractors on the project, due to the Design Professional’s professional negligent acts, errors or omissions, such that the total aggregate liability of each Design Professional shall not exceed $50,000 or the Design Professional’s total fee for services rendered on this project.

4 Like Valhal, supra, the clauses in 1800 Ocotillo, LLC v. WLB Group, Inc., 217 Ariz. 465 (176 P3d 33) (2008), and Fort Knox Self Storage v. Western Technologies, 140 N.M. 233 (142 P3d 1) (2006) restrict the limitation of liability to claims arising solely between the contracting parties and/or their agents (i.e., employees, building contractors and subcontractors) and are devoid of any reference to liability for third-party claims brought by the general public.

5 The limitation of liability clause in Valhal did not allow the architect to be reimbursed by the developer for third-party negligence claims of the general public for which the architect was solely liable. The limitation of liability clauses in 1800 Ocotillo, LLC v. WLB Group, Inc., supra, 217 Ariz. 465 and Fort Knox Self Storage v. Western Technologies, supra, 140 N.M. 233, also do not allow for such reimbursement.

6 We reject the notion that the clause agreed upon by Lanier and PEC is a “limitation of liability clause,” simply capping damages. Because this clause allows shifting liability for third-party claims from one contractor to another, it is an indemnity. Holmes v. Clear Channel Outdoor, supra, 284 Ga. App. at 477.

7 Professional engineers are regulated at OCGA § 43-15-1 et seq. The very first provision of that code section states, “ [t]his chapter is enacted to safeguard life, health, and property and to promote the public welfare.” OCGA § 43-15-1. With that purpose in mind, the legislature saw fit to require “professional engineers” to meet a host of requirements, including having at least a four-year degree in an accredited engineering curriculum, acquiring a certain number of years of engineering experience, and passing a written examination. OCGA §§ 43-15-8 and 43-15-9. Only engineers certified by the Georgia Board of Professional Engineers and Land Surveyors may engage in the practice of “professional engineering” (OCGA § 43-15-18), and they must adhere to rules of professional conduct promulgated by the Board, including practicing in “a manner as to protect the safety, health and welfare of the public.” Thus, professional engineers are very much like physicians and attorneys in the degree they are regulated by the state in order to protect the public welfare. See OCGA § 43-34-3 et seq. (regulating physicians) and OCGA § 15-19-1 et seq. (regulating attorneys). See also Carvalho v. Toll Bros. & Developers, 143 N.J. 565 (675 A2d 209) (1996) (engineers cannot be held harmless or indemnified per se for their sole negligence).

8 OCGA § 13-8-2 (a) states in pertinent part: “A contract which is against the policy of the law cannot be enforced.”