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Can You Limit Liability for Your Own Negligence in a Contract

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  • Posted on: Jul 7 2023

By Jonathan H. Freiberger

Folks sign contracts of all types that purport to contain limitations of liability; but are they enforceable.  In many cases, the answer is “yes”. 

“In the absence of a contravening public policy, exculpatory provisions in a contract, purporting to insulate one of the parties from liability resulting from the party’s own negligence, although disfavored by the law and closely scrutinized by the courts, generally are enforced, subject however to various qualifications.”  Lago v. Krollage, 78 N.Y.2d 95, 99 (1991) (citations omitted).  See also Princetel, LLC, v. Buckley, 95 A.D.3d 855 (2nd Dep’t 2012) (quoting Lago and citing to others).  “Where the language of an exculpatory agreement expresses in ‘unequivocal terms’ the intention of the parties to relieve a defendant of liability for its own negligence, the agreement will be enforced.”  Princetel, 95 A.D.3d at 855 – 56 (quoting Lago).  Thus, “[t]o be enforceable, exculpatory language must be unambiguously so: it must plainly and precisely provide that the limitation of liability extends to negligence or other fault of the party attempting to shed his ordinary responsibility [and, while] courts do not necessarily require that the word ‘negligence’ be used, there must be words conveying a similar import.” Spancake v. Aggressor Fleet Ltd., 1995 WL 322148 (S.D.N.Y. 1995) (citations, internal quotation marks and brackets omitted).

However, “[p]ublic policy … forbids a party’s attempt to escape liability, through a contractual clause, for damages occasioned by grossly negligent conduct.”  Colnaghi, U.S.A., Ltd. V. Jewelers Protection Services, Ltd., 81 N.Y.2d 821, 823 (1993) (citation and internal quotation marks omitted); see also S.A. De Obras y Servicios, COPASA v. Bank of Nova Scotia, 170 A.D.3d 468, 472 (1st Dep’t 2019).  “Gross negligence” is “conduct that evinced a reckless disregard for the rights of others or smacks of intentional wrongdoing.”  Colnaghi, 81 N.Y.2d at 823 – 24 (citation and internal quotation marks omitted); see also Diniro v. Aspen Athletic Club, LLC, 173 A.D.3d 1789, 1790 (4th Dep’t 2019).

The Appellate Division, Second Department, addressed these issues on July 5, 2023, in Seti v. Carnell Associates, Inc.  The plaintiffs in Seti were home purchasers that hired Carnell Associates, Inc., a home inspection company, to conduct a prepurchase inspection of a house.  The operative contract provided that “a Carnell employee would conduct a limited visual inspection of apparent conditions in easily accessible areas, and that no warranties or guarantees were made for any latent or concealed defects.”  The contract further provided that Carnell’s liability would be limited “to the cost of the inspection.”  Plaintiff purchased the home after Carnell issued its report.  

Plaintiffs commenced action against Carnell “alleging that it was grossly negligent in its inspection in that it failed to identify, among other things, termite damage and a structural defect with the concrete slab.”  Carnell moved for summary judgment dismissing the complaint and plaintiff cross-moved for summary judgment on its complaint.  The motion court granted Carnell’s motion and denied plaintiff’s cross-motion “as academic.”  The Second Department affirmed.  After discussing the general law on the subject along the lines discussed herein, the Second Department stated:

Here, the inspection contract entered into by the parties limited Carnell’s liability for any deficiencies in its performance to the cost of the inspection. Notwithstanding that provision of the contract, the plaintiffs allege that they are entitled to recover from Carnell the full cost of repairing the alleged defects that Carnell failed to observe during the inspection and disclose in its report, since those omissions constituted gross negligence on its part.

The evidence submitted by Carnell in support of its motion was sufficient to demonstrate, prima facie, that the inspection performed in this case was not so defective as to evince a reckless indifference to the rights of others or a failure to exercise even slight care. In opposition, the plaintiffs failed to raise a triable issue of fact as to whether Carnell’s alleged omissions went beyond ordinary negligence and satisfied the gross negligence standard.

Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

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