1.27.20 – CEPro – Even with an ironclad contract, integrators can be sued for “gross negligence” on a project. So should you even include that term in your contract?
“The provision is often worded to include breach of contract, failure to perform or negligent performance. Years ago, we added ‘negligence to any degree’ in the hopes that the courts would enforce the provision despite allegations of gross negligence,” he says.
Unfortunately, gross negligence is defined differently by the courts in different states.
“Some definitions are, in my opinion, clearer than others. Negligence can be viewed as a range along a continuum, starting at departure from reasonable conduct and standards, and running all the way to reckless and wanton conduct. At some point on the continuum the conduct crosses the line from negligence to gross negligence. Some courts have defined gross negligence as a departure from even slight negligence, and others have, in my opinion been a bit clearer, calling gross negligence wonton, reckless, and willful conduct reasonably expected to injure another.”
Negligence vs. Gross Negligence in Your Contract
The difference between simple “negligent” behavior and “gross negligent” conduct is big because almost all courts will not enforce the limitation of liability/exculpatory clause in a case of “gross negligence.”
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But should your contract actually include an exculpatory clause protecting you from liability from “gross negligence”? It is an open question.
If your contract says that you are not liable in cases of gross negligence, it effectively renders the contract unenforceable and some judges will throw out the entire contract as invalid. Yikes, that paints you really into an unprotected corner.
However, other judges might OK a contract with a protective clause against liability from gross negligence, thus giving you an additional layer of security against lawsuits.
Kirschenbaum notes that in most cases where gross negligence by the integrator was deemed to have taken place, the lawyers will settle out of court to avoid massive judgments.
He tells integrators that if they are deemed to be grossly negligent in the court’s initial summary judgment, it is not necessarily a death blow. Indeed, sometimes so much of the plaintiff lawyer’s energy is spent on winning the “battle” to have an action declared as gross negligence that winning the “war” for an overall judgment is much harder.
“The settlement range often depends on the findings in the judge’s decision denying summary judgment,” he notes.
Kirschenbaum adds that often courts will scrutinize the exculpatory clause in an integrator’s contract closely looking for reasons not to enforce it. Also, he says astute clients will also ask dealers to strike the term “gross negligence” from their limitation of liability.
Is that a red flag to avoid that client? Not necessarily, says Kirschenbaum, noting that “it’s the law anyway” for gross negligence not to protected in a contract, so he says dealers should approve the striking of that clause if a client asks.