Limitations on Liability for Construction Professionals

Evaporation Clauses

An Evaporation Clause operates in a similar fashion to a liability cap, however, the cap is reflective of the amount recoverable by you from your Insurers.

This may be especially useful when considering aggregate limits of indemnity, which will vary over time as claims are brought. Evaporation Clauses reduce your risk of uninsured losses through excluding losses which are in excess of the cover you hold. It is important to note that clear reference to your policy at time of claims notification should be made, to avoid a shortfall in the event that your levels of cover fluctuate.

Example 

The liability of the Consultant under or in connection with this Agreement whether in contract or in tort, in negligence, for breach of statutory duty or otherwise in respect of any claim or series of claims shall not exceed the amount, if any, recoverable by the Consultant by way of indemnity against the claim or claims in question under professional indemnity insurance taken out by the Consultant and in force at the time that the claims or (if earlier) circumstances are notified to the insurers in question.

Net Contribution Clauses

Under the law of England & Wales, you are ordinarily considered to have ‘joint and several liability’. This means that, in the event of a claim, a claimant may pursue you for all of their losses, even if you were only partially involved. It is then your responsibility to recover your losses from other involved parties. Whilst this is, theoretically, a useful tool to ensure that claimants are more likely to recover their losses, it can prove dangerous in the construction industry when considering the rate of insolvencies. A Net Contribution Clause reverses this standard legal position, ensuring that you are only held liable for the proportion of losses which is fair to attribute to you. For this reason, inserting a Net Contribution Clause into your agreements is a prudent decision.

Example 

Without prejudice to any other exclusion or limitation of liability, damages, loss, expense or costs the liability of the Sub-Contractor/Sub-Consultant if any for any loss or damage (‘the loss and damage’) under this Agreement shall not exceed such sum as it would be just and equitable for the Sub-Contractor/Sub-Consultant to pay having regard to the extent of his responsibility for the loss or damage and on the assumptions that: (i) all other consultants, contractors, sub-contractors, project managers and advisers engaged in connection with the Development have provided contractual undertakings on terms no less onerous than those set out in Clause [X]* to the Beneficiary in respect of the carrying out of their obligations in connection with the Services; (ii) there are no exclusions of or limitations of liability nor joint insurance or co-insurance provisions between the Beneficiary and any other party referred to in this clause and any such other party who is responsible to any extent for the loss and damage is contractually liable to the Beneficiary for the loss and damage; and (iii) all the parties referred to in this clause have paid to the Beneficiary such proportion of the loss and damage which it would be just and equitable for them to pay having regard to the extent of their responsibility for the loss and damage.

* This should reference the clause in your agreement which sets out your standard of care

Limitation Clauses

Under the Limitation Act 1980, your liability period under contract will be either 6 years for simple contracts executed under hand, or 12 years for matters executed as a deed. This is the default position, however, you are able to agree to a liability period of your own choosing in the drafting of a contract. There is certainly a degree of risk as associated with the same, as extending your liability period beyond the default is likely to be considered as onerous, generating a risk of uninsured exposure in the process. On the other hand, the ability to potentially reduce the limitation period, tying the same to the end of your involvement in a given project, is a useful tool.

Example 

No action or proceedings for any breach of this Agreement whether in contract or in tort or in delict or in negligence or for breach of statutory duty or otherwise shall be commenced against the Consultant after the expiry of 12 years from the date of practical completion of the relevant part of the Works under the Building Contract, or if sooner, the date that the Consultant last performs its services for the Contractor under this Agreement.

[Please note, the above limitation periods are offered in line with the laws of England and Wales, and may vary dependent on the relevant jurisdiction of a given agreement]

Hold Harmless Agreements

Hold Harmless Agreements serve as useful provisions whereby one party to a contract undertakes to not hold the other party responsible for any losses sustained in the course of their services. The ability to absolve yourself of responsibility is, naturally, favourable, and so where such a clause can be included, it is generally good practice to do so. Moreover, the inclusion of indemnity style language in such clauses can be utilised to ensure that the other party to the contract is required to reimburse your losses.

Example

The Employer shall indemnify and hold harmless the Consultant from and against all losses in relation to any claims made or brought by any person